The size and composition of the Reserve Bank board, including representatives from the union or the small business sector, will be a key part of an independent review of the institution that is likely to be completed by the middle of next year.
Treasurer Jim Chalmers revealed on Sunday the review would also take into account “lessons” from volatility in interest rate settings to ensure the Reserve Bank’s targets were world’s best practice.
The make-up of the Reserve Bank board will be a key part of an independent review that is likely to get underway next month.Credit:Louie Douvis
Both Labor and the Coalition went to the election promising an independent review of the RBA in the wake of a series by The Sydney Morning Herald and The Age into the bank, its setting of interest rates over recent years, its board composition and how monetary policy interacts with budget settings.
The bank has come under criticism from academic economists for its handling of interest rates before the COVID-19 pandemic, as well as its monetary policy settings through the recent recession.
The review, the first of the bank since the early 1980s, is likely to start either next month or by early August. It would run for about 12 months.
Chalmers said the review would look at the RBA board including its number of members, currently nine, and their experience and background.
Treasurer Jim Chalmers.Credit:Alex Ellinghausen
“There’s been a welcome conversation, about whether or not the Reserve Bank board is broad enough, representative enough, whether it’s the right size,” he told the ABC’s Insiders program.
“When I announce the terms of reference for the Reserve Bank review, I think one of the key considerations should be board representation, whether it’s broad enough, in geographic terms and gender and all the important considerations, but also make sure that the right voices are represented around the table, the board is of the right composition and size.”
A criticism of the RBA board has been its failure to forecast accurately the rate of wage growth over the past 10 years. One argument is the RBA board hasn’t had a representative from the union movement since 1996 when then-ACTU secretary Bill Kelty resigned after the election of the Howard government.
The current board includes two members with ties to the right-wing Centre for Independent Studies but no one from the union, welfare or small business sector.
The board is unusual in central bank circles, as most have monetary policy experts set interest rates while the bank itself is overseen by people with a business background.
Chalmers said it would not be unprecedented for someone from the union movement to be on the bank board, but argued he was not in favour of having a “standing position” on the RBA.
“I have an open mind to make sure that workers are represented but this is one of the things I want the Reserve Bank review to look at,” he said.
“We want the board to be comprised of people representing all parts of the country and of the economy and so this is one thing I would like to look at.”
Apart from a unionist, the review is likely to examine whether someone from the small business sector should have a voice on the board.
Board members are determined by the treasurer of the day. Despite claims to the contrary, former treasurers have often sought to have a board that effectively “represents” different parts of the country or particular sectors of the economy.
Chalmers said while the bank had come under criticism from people including former treasurer Peter Costello, he would not take “pot shots” at the institution.
He said the aim of the review was to make sure the bank was in a position to make the best possible decisions.
“I think over a long time we have been well served by our economic institutions, the Reserve Bank, the Treasury, regulators and others,” he said.
“My objective with this review of the Reserve Bank is not to take shots at the bank or take shots at the governor, but to make sure that we’ve got the right monetary policy settings.”
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