The proposed overhaul, which aims to split the RBA into two boards – one for interest rate decisions and one for governance – has hit a roadblock. Last week, shadow treasurer Angus Taylor expressed strong opposition, complicating the government’s plans.
With Taylor’s stance now a significant hurdle, the government faces a tough choice: stick with the existing structure or forge new negotiations with the Greens and crossbenchers to push the reform forward.
However, according to economists, Taylor’s opposition to the reform may not be entirely detrimental.
AMP’s deputy chief economist, Diana Mousina, believes that dismantling the current interest rate board right before the RBA may potentially start cutting interest rates “doesn’t seem right for policy settings”.
In a market note published late last week, Mousina reminded that “there is no evidence that having a dual board structure would improve how the central bank sets policy” – a point raised earlier by her colleagues and AMP’s chief economist, Shane Oliver.
“The review indicated that having a specialist monetary policy board would allow more debate within the board meetings, as in the past decade the board has always voted with the RBA recommendation.
“The RBA has always, arguably, always has more independence to its board compared to other global central banks because they have a higher share of externals on the board,” Mousina said.
For instance, the Federal Reserve maintains a board composed entirely of internal members.
“Having external part-time board members who are very opinionated about monetary policy, voting in the meetings (with the votes being published) and speaking at events could end up seeing the externals with more power than the RBA, which could diminish the value of the RBA institution, who has been tasked with the job to set interest rates,” the deputy chief economist said.
“This whole drama around seems like noise and has little implications for actual interest rate settings.”
Last year, Oliver raised concerns in a detailed analysis of the proposed RBA changes, similarly questioning whether allowing external members to potentially outvote internal RBA members on the monetary policy board might lead to confusion and undermine the bank’s accountability.
“Having more monetary policy experts involved in the determination of monetary policy is a move in the right direction in being better able to challenge the RBA and add to its views. It may, at the margin, help avert a rerun of some of the RBA’s missteps of recent years in relation to yield targeting and the ‘no rate hike till 2024’ guidance, but having learned from that experience, the RBA is unlikely to repeat them again anyway,” Oliver said.
“The potential for external members to outvote the RBA members on the monetary policy board could create confusion and actually reduce formal RBA accountability.”
The government, however, seems firmly set on pushing the reforms through Parliament, with Treasurer Jim Chalmers on several occasions voicing that he has the full support of RBA governor Michele Bullock.
However, with the opposition now clearly against the reform, Chalmers will have to negotiate with the Greens who, in return for their vote, are asking for the Treasurer to act immediately to lower interest rates.
Last week, Chalmers said: “I’d rather not have to do a deal with the Greens”.
“If I can avoid it, I would. But I’m committed to these reforms. These reforms are really important. They’re really considered. They’ve been in the public domain for the best part of a couple of years now. They’ve been the subject of welcome discussion and debate, and it’s time to make this legislative change.”
