New Reserve Bank board shake-up to improve communication and transparency to homeowners

Homeowners will see less interest rate announcements each year in the biggest Reserve Bank shake-up we’ve seen in years.

An independent review of the RBA was undertaken in July after the central bank was criticised for its interest rate policies and forward guidance after infamously saying interest rates wouldn’t rise until at least 2024.

Federal Treasurer Jim Chalmers initiated the review to look into the inflation target, monetary tools, communications around interest rate changes, and accountability and culture.

The three reviewers have recommended the RBA board be split into two, one to set interest rates and the other to focus on the bank’s governance, to improve decision-making in these two key areas.

The bank will meet eight times a year instead of monthly to set rates, hold more press conferences to improve accountability and hold performance assessments every five years.

The RBA will maintain its 2 to 3 per cent inflation target.

“The more complex and uncertain environment has tested the RBA and its monetary policy framework,” the reviewers said.

“This has underscored some of the strengths of current arrangements. But, in a number of recent episodes, it has highlighted clear opportunities to improve systems and processes.

“There is limited information available to the public about the factors driving the Board’s decisions, or how alternative viewpoints or policy options are weighed. Accountability mechanisms for individual Board members are lacking.”

While improvements to performance and accountability appear to be the main goal here, there are doubts the new split board arrangement would have meant different outcomes for Australian homeowners over recent months.

Inflation in Australia is similar to other countries that already have the dual board system in place, so homeowners would most likely not have felt much difference in interest rates had it already been in place here.

The new model brings the country into line with other major central banks globally such and Canada and the United Kingdom, and reviewer Carolyn Wilkins, formerly from the Canadian central bank, told Australian Financial Review it was unusual for the RBA board to be doing both monetary policy and governance together.

“It’s really a question of clarity of roles and responsibilities and having the right people assigned to the right job,” she said.

“As well as having a better ability to have an enterprise-wide view of operational governance like a regular board would do, while at the same time allowing the monetary policy group or monetary policy board to really focus on those decisions and have the time that they need.”

Current Reserve Bank governor Philip Lowe has welcomed the recommendations in improving and strengthening the RBA as an institution.

“From a number of perspectives, current oversight arrangements fall short of contemporary standards,” he said in

“The proposed changes would address this and help the governor manage the bank and its many functions.

“The recommended changes could also strengthen the monetary policy process, by having a board whose sole focus is monetary policy. I very much welcome the conclusion that this board should include people with diverse perspectives and knowledge and who have experience in decision-

making under uncertainty. It is also pleasing to see that the panel recommended that the Treasury Secretary remain on the board.”

Time will tell if the new set-up will improve interest rate and monetary policy settings in Australia, but homeowners should notice an immediate improvement in transparency and communication from the Reserve Bank once the changes kick in.


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