MELBOURNE, April 4 (Reuters Breakingviews) - Australia’s central bank is getting the builders in – literally and figuratively. The Reserve Bank of Australia’s 1960s Sydney headquarters is currently clad in scaffolding, part of what is supposed to be a two-year, A$200 million-plus ($135 million) renovation. Next comes overhauling the institution’s interior workings.
For a central bank, the RBA is particularly quirky. Of the nine-person board that votes on interest-rate moves, only two work for the regulator, compared to a majority at the Bank of England and the U.S. Federal Reserve. The remaining seven are part-timers, and only two of them are trained economists while the rest are drawn from the business world. One seat is allocated to the top civil servant at the Treasury. This structure invests outsized power and responsibility in the governor role and leaves a potential loophole open for government meddling.
The authors of a review of the central bank handed on Friday to Australia’s Treasurer Jim Chalmers have floated ideas like packing the board with more economists to spur a more intellectually robust debate about rate policy. They may also recommend the governor hold a press conference after some or all monetary policy decisions as other institutions do. Another idea is creating a second board to oversee non-interest rate business. This combination would take pressure off the governor and make running the RBA smoother.
All this probably comes too late to help Philip Lowe, the RBA’s beleaguered current boss. He has hiked rates 10 times since May to combat inflation, having stated only two years ago that they probably wouldn’t increase until 2024. Chances are Chalmers won’t renew his term, which expires in September.
Another major task for the review panel was assessing how the bank combats inflation, which hit 7.8% in the year to December. Trouble is, like other central banks, the tools at the RBA’s disposal are designed to respond to demand-driven signs of price hikes, like wages increases, not supply-side events like pandemics, trade sanctions and wars. Refurbishing the RBA’s governance is worthwhile, but those hoping the review panel will devise a new model to insulate economies against price shocks are probably going to be disappointed.
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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
CONTEXT NEWS
The board of the Reserve Bank of Australia will decide whether to raise interest rates for the 11th time in succession on April 3. The current rate is 3.6%.
Treasurer Jim Chalmers on March 31 received the final report on the review of the country’s central bank that he unveiled last July. He said on March 30 that he intends to release his initial take on the report by mid-April.
The three-person panel who undertook the review of the Reserve Bank of Australia are Carolyn Wilkins, currently an external member of the financial policy committee of the Bank of England and a former senior deputy governor of the Bank of Canada; Professor Renée Fry-McKibbin of the Crawford School of Public Policy of Asia and the Pacific; and Dr Gordon de Brouwer, secretary for public sector reform.
