The Reserve Bank review is assessing calls for changes to the central bank’s inflation target, the selection of board members and how authorities should manage shocks from asset bubbles to the climate crisis.
The review, launched in July with a reporting deadline for next March, has received more than 114 submissions, interviewed 230-plus people and surveyed almost 1,100 current and former RBA staff, the panel told a CEDA briefing in Sydney on Thursday.
The panelists – professors Renée Fry‑McKibbin and Carolyn Wilkins, and secretary for public sector reform, Gordon de Brouwer, said there was “deep support” for the central bank to remain independent from executive government.
Having the treasury secretary as a voting RBA board member, however, was one matter raised by submissions. The qualifications and skills required of board members, and the manner of their selection, are among other issues the review is considering.
De Brouwer said inflation over the past three decades had averaged 2.4%, or well within the 2% to 3% range the RBA aims for. However, since 2015, the bank had been challenged by low inflation for the first four years, the pandemic and its need for unconventional interventions such as bond buying, and lately the “genuine shock” of the spurt of price increases.
“The question that people raise is, is the communication of the bank – explaining why its policy stance is where it is – actually as clear and fulsome as it could be?” he said, adding that there had been “a mixed report card” for the RBA’s recent past.
The RBA and its governor, Philip Lowe, has come under criticism for signalling as late as the end of 2021 that its key interest rate might remain unchanged until 2023 or 2024.
Rising inflation, particularly in the wake of Russia’s invasion of Ukraine in February, instead prompted the central bank to starting lifting its cash rate in May at the start of a record seven monthly hikes that markets expect will extend in December.
The bank itself has blamed the misfire on a competing goal of trying to keep borrowing rates low to ensure the economic recovery gathered momentum. It has also indicated it will provide less guidance about its future plans until necessary.
“Most of the people we speak to are in agreement that the flexible inflation-targeting with an independent RBA has worked well for us over the past 30 years,” Fry-McKibbin said. “But there is a concern that we’re going to be facing different shocks.”
These may be from global heating or geopolitical shifts that mean monetary policy will have to adjust what it targets. Fiscal, regulatory or other policies might also provide “a better lever”, avoiding some sections of the population being hit harder than others, she said.
More regular reviews might also be in the offing. Some central banks face such scrutiny every five years while the RBA’s role hasn’t been examined in detail since the 1990s.
Divvying financial stability responsibilities between the RBA and the Australian Prudential Regulatory Authority remained unclear. “Now it’s quite informal,” Fry-McKibbin said. “There have been suggestions that we could look at formalising the council of financial regulators [which include treasury and the Australian Securities and Investments Commission] a little more.”
De Brouwer said it was important to have “real clarity” about the responsibilities of different institutions “so they can be held accountable”.
Wilkins said there remain gaps in dealing with asset bubbles, particularly if they come from “outside the banking system and in areas that are unregulated”.
Shadow banking and liquidity driven investments that recently caused turmoil in the UK were examples of the issues authorities need to monitor, said Wilkins, who also sits on the Bank of England’s financial policy committee.
The review panel also briefed opposition treasury spokesman, Angus Taylor, on Wednesday.
“The government wants the review to be as bipartisan as possible - that’s why I’ve ensured the opposition has been kept up-to-date on its progress,” treasurer Jim Chalmers said.