The review into the Reserve Bank (RBA) has recommended that a new board be established to deal exclusively with monetary policy, while governance decisions are conferred to a corporate governance board.
Specifically, the monetary policy board would be chaired by the governor, who would work alongside the deputy governor, treasury secretary, and six external members with expertise in areas such as open-economy macroeconomics, the financial system, labour markets, and more.
But the review’s recommendation for the two-board system (recommendation 8) indicated a perceived deficiency in the current board's level of expertise, particularly regarding decision making in complex and uncertain environments.
It also implied that the review panel was of the mind that the board’s members were not able to “robustly” challenge the views of the governor and that an “independent perspective” was lacking.
The board’s failure to vote against a single recommendation of the bank’s executive in at least the last decade was also referenced by the review as reason for its recommendation.
Moreover, the panel explained that the board’s members themselves described their role in various ways, ranging from providing real-time feedback on the economy to an informed second opinion, to a “pub test” of how decisions might be understood by the public.
“That leaves the underlying economic and financial judgements with insufficient external scrutiny or challenge and represents a missed opportunity,” the panel said.
It added that even the board’s outside members lacked the expertise to scrutinise and challenge the RBA’s judgements.
Responding to the review on Thursday, and in particular the panel’s findings under recommendation 8, the RBA governor Philip Lowe said that the panel's perception of the board's current composition did not resonate with him.
“The review panel did not sit in the boardroom,” Dr Lowe told the media.
“The description of how the board process works and the challenge in the boardroom that the panel has, doesn’t particularly resonate with me.”
Dr Lowe also defended the board members, referring to them as people with “a great deal of expertise”, and applauded their “deep engagement” with the questions at hand.
“They are probing, they challenge me, and sometimes I speak last in the meeting. So, the idea that the board members sit there meekly and accept the recommendation that I put to them is very far from the reality that I have lived as the governor,” Dr Lowe said.
He did, however, concede that he understood the push for more expertise on the board.
“I’ve defended the process in the past. You’ve got nine people making those decisions, they do it very diligently and have the expertise, but that’s not to say that we can’t have a different structure that would help. But I’ve defended the board in the past because I think it’s worked really effectively,” Dr Lowe said.
When questioned about whether he believed a two-board system, if implemented several years ago, would have yielded a different result for the economy, Dr Lowe confidently remarked that a different structure wouldn’t have made a difference.
“I would observe that most countries are in the same place. Being in Washington, we had meetings with the G20 and with the central governors and we’re all dealing with exactly the same things,” Dr Lowe said.
“No matter what structure you have at the central bank, you have those things, and I think it’s not correct to say that a different decision-making structure would make fundamentally different outcomes in these areas.
“I think the changes are positive, but I wouldn’t overestimate that they would fundamentally change how the economy works.”
Moving forward, Dr Lowe said the monetary board’s sole focus on monetary policy would promise a “richer” level of engagement to the betterment of the overall process.
“Our monetary meetings will be longer, and our board members will have to spend more time here, and they’ll engage with the staff. I think that process will help. So, it’s not having these two separate boards or even changing the personnel of the board, it’s having a richer interaction between the board and the bank staff,” he said.
Overall, Dr Lowe welcomed the conclusions of the review into the RBA and thanked the panel for their “excellent work”.
“The review has been timely, with the RBA facing an increasingly complex world and operating environment. The recommendations will help us deal with this more complex world and will strengthen the monetary policy process and governance of the RBA.”
Lowe on remaining governor
With his term due to expire in September, Dr Lowe has faced multiple questions regarding his future and whether he believed he still enjoyed the confidence of the government following his pandemic mishap which saw him assure the public that rates would remain at a record low 0.1 per cent until 2024.
Asked again on Thursday, Dr Lowe hinted that he would not lose sleep over the government’s decision.
“It’s entirely up to the government whether I continue to serve in this role after September. If I was asked to continue, I would. If I’m not asked to continue, I will find another way to contribute to Australian society,” Dr Lowe said.
Facing a similar question an hour earlier, Treasurer Jim Chalmers reiterated that a decision on the governor would be made closer to the middle of the year.
“In the ordinary course of events, the government would turn its mind to that appointment closer to the middle of the year and that’s my intention,” the Treasurer said.
For more coverage of the RBA review, click here.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
