Following comments from a departing senior researcher who said the RBA’s policy positions were “contradicted by internal and external research”, Labor MP Andrew Leigh questioned the bank’s “insular” management culture at a fiery hearing of the House economics committee on Friday.
“You’re one of the more insular central banks with many of your staff having spent their entire careers at the organisation – in a private sector organisation that kind of culture would almost certainly see that organisation fail,” Dr Leigh told RBA governor Philip Lowe.
“When I put this to you at a previous hearing you said ‘each month my staff tell me I’ve got it fundamentally wrong’ – are those differences ever presented to the board for adjudication?”
Mr Lowe said the bank had made a number of external management appointments in recent years including one of its assistant governors, its head of finance and head of economic analysis.
“At the board meeting I say periodically that the staff have got this view or that view and we discuss that – we’ve got independent thinkers from the board who are bringing perspectives from lots of different places, so I would push back on the proposition that there is no testing of ideas,” he said.
Dr Leigh pointed to the fact that the RBA’s board was made up of barely any experienced economists, with the majority of directors hailing from blue-chip companies including Coca-Cola Amatil, Fortescue and Equity Trustees.
“[The board members] wouldn’t characterise themselves as monetary policy experts and they wouldn’t be appointed by any other central banks around the world,” Dr Leigh said.
“When the conversation becomes technical, virtually no one on the board has the expertise to challenge the staff.”
Mr Lowe said he believed the diversity of experience on the board, and their skills in high-pressure decision-making, would stand it in good stead in the current economic climate.
“What they bring to the table is an appreciation of the difficulties of decision making in uncertainty, and I feel with due respect to economists that...it would be a backward step to have people of the same background on the board,” he said.
Dr Leigh accused the bank of suffering “an unhealthy level of groupthink”, as Mr Lowe repeated forecasts made earlier in the week that the RBA would not look to raise interest rates until 2024 at the earliest, with inflation currently well below its target band of 2 to 3 per cent.
“My view is in the circumstances we’ve faced, we’ve operated effective and responsible monetary policy,” Mr Lowe said.
“The fact is that wage growth around the world has been weak, reflecting globalisation and technology shifts in the bargaining power of labour, and we can’t deliver 2.5 per cent inflation if wages are growing at 2 [per cent].
“Are wages growing at 2 because the RBA hasn’t run good monetary policy? You might argue that, but my perspective is that it’s structural – global factors are delivering slow wages growth and our strategy is to support the economy so firms have to compete again for workers.
“I’m confident that it will work but it’s going to take time and it won’t be before 2023.”
