A damning inquiry into the Reserve Bank of Australia has criticized its board members for not having the expertise to challenge Governor Philip Lowe over rate decisions.
The 282-page report, released Thursday, said the RBA’s outside board members had less “economic expertise” than their counterparts at the Bank of England, the US Federal Reserve, the Reserve Bank of New Zealand and the Norges Bank in Norway.
“This has limited the depth of challenge and debate among the Reserve Bank board,” it said.
The evaluation made 51 recommendations for change in five key areas, including better financial stability policies, reformed monetary policy decision-making, increased debate, new management structures and cultural change.
Dr. Lowe promised in 2021 that interest rates would remain at a record low of 0.1 percent “at the earliest” in 2024, even though inflation was already above the RBA’s target of 2 to 3 percent that year.
The Reserve Bank has raised interest rates ten times since May 2022, pushing cash interest rates to an 11-year high of 3.6 percent.
A scathing review in the Reserve Bank of Australia has criticized its board members for not having the expertise to challenge Governor Philip Lowe (pictured on a Sydney golf course)
Inflation reached a 32-year high of 7.8 percent in 2022, despite rate hikes, with the first pause in a year in April.
The RBA review, the most comprehensive in four decades, now recommends the creation of a new specialized monetary policy council, noting that in 2020 the existing board members were not well placed to debate the merits of lowering the cash rate up to 0.1 percent.
“During the pandemic, for example, people with a better understanding of the financial system may have been better placed to offer alternative points of view on the design of the proposed complex monetary policy instruments,” it said.
“The level of economic expertise among outside Reserve Bank board members was a factor that some (both inside and outside the RBA) pointed to as reducing the demand for technical insight and research within the RBA.
“It probably contributed to a research culture at the RBA that is not well embedded in the policy process.”
The review recommended “changing the structure of the board of directors” so that “future decision-makers have the expertise to understand complex economic assessments of issues relevant to monetary policy and confidently express their own informed opinions ‘.
Treasurer Jim Chalmers (pictured with wife Laura) will introduce legislation to implement the RBA appraisal recommendations
It said prospective board members should have a “collective in-depth understanding of areas such as open economy macroeconomics, the financial system, labor markets and the supply side of the economy.”
Key recommendations from the Reserve Bank review
Create a specialized monetary policy board with input from people with interest rate expertise.
The Governor of the Reserve Bank of Australia would hold a media conference to announce any interest rate decision.
More detailed forecast data would be published.
The RBA would meet eight times instead of eleven times a year.
This likely meant “more academic expertise than currently sits on the Reserve Bank board.”
“The focus on expertise should not be interpreted as meaning that the Review recommends a purely academic Monetary Policy Board; it’s not,” it said.
RBA board member Ian Harper, the dean and director of Melbourne Business School, admitted last week ‘in hindsight … it looks like we did a terrible job’.
Other members of the Reserve Bank board lack his academic qualifications.
Alison Watkins, one-time CEO of Coca-Cola Amatil, was appointed to the RBA board in December 2020 for a five-year term, when she continued to earn $2,178,652 a year as head of the soda bottling business.
Fellow Board Member Mark Barnaba is Deputy Chairman of Fortescue Metals Group.
Treasurer Jim Chalmers will introduce Albanian legislation on behalf of Prime Minister Anthony to implement the RBA assessment recommendations.
“The Albanian government agrees in principle with all the recommendations of the review and will now work with the RBA, parliament and other stakeholders to implement them,” he said.
Angus Taylor, Dr. Chalmers’ shadow counterpart, has been briefed.
The RBA review was conducted by Professor Carolyn A. Wilkins, a former senior deputy governor at the Bank of Canada; Professor Renée Fry-McKibbin, Professor of Economics at the Australian National University; and Dr. Gordon de Brouwer, Secretary for Public Sector Reform.
They recommended that Dr. Lowe, or his replacement as governor, should his seven-year term not be extended beyond September, hold a media conference after each interest rate decision.
Alison Watkins, one-time CEO of Coca-Cola Amatil, was appointed to the RBA board in December 2020 for a five-year term, when she was still earning $2,178,652 a year as head of the soda bottling plant