Reserve Bank revolution: how Jim Chalmers will recraft the RBA for the 21st century

The review into the Reserve Bank of Australia has just been published by Treasurer Jim Chalmers, and it’s a blockbuster. The review has made 51 recommendations including: Chalmers offered in-principle agreement to all 51 of the panel’s recommendations and would be seeking support from the Opposition for any legislation needed to implement them.

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https://theconversation.com/reserve-bank-revolution-how-jim-chalmers-will-recraft-the-rba-for-the-21st-century-204139https://theconversation.com/reserve-bank-revolution-how-jim-chalmers-will-recraft-the-rba-for-the-21st-century-204139
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Thursday, April 20, 2023
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Review, National university, Unemployment, Public policy, Culture, Opposition, Policy, Australian National University, Crawford School of Public Policy, Crawford School, Chalmers, High court, Brain, Forecasting, Government, Thought, Projection, Lowe, Magistrates' court, Bank, Time, Reserve Bank, Growth, Reserve Bank of Australia, RBA, Legislation, Management, Nursing
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The review into the Reserve Bank of Australia has just been published by Treasurer Jim Chalmers, and it’s a blockbuster. The review has made 51 recommendations including:

  • Chalmers offered in-principle agreement to all 51 of the panel’s recommendations and would be seeking support from the Opposition for any legislation needed to implement them.
  • The review has briefed Opposition Treasury spokesman Angus Taylor on its thinking.

What was the problem?

    • As a result, wage growth was too low and unemployment too high.
    • The most likely explanation is that the bank was focused too much on stabilising the financial system and too little on boosting the economy.
    • But the underlying problem – that the board was populated by monetary policy amateurs rather than experts – remained the same.
    • But the bank board ignored this advice and instead set out a three-year projection for how long rates would stay low.

Culture club

    • The review says former and current staff have told it the bank’s culture is hierarchical and risk-averse.
    • Accordingly, the review has recommended that the bank improve its culture by appointing a chief operating officer with a mandate to open up the bank up to new ideas and staff and break down silos within the bank.

What’ll this mean for rates?

    • Rates will remain high for as long as inflation is projected to stay above the 2-3% target band.
    • The review considered whether or not the 2-3% target remains optimal and concluded that it does.
    • It considered alternatives such as a higher inflation target or targeting nominal gross domestic product, and found them lacking.

What about RBA Governor Philip Lowe?

    • A review that found the bank was in good working order would have been a good reason to reappoint the present governor, whose five-year term ends in September.
    • The scale of the changes recommended by the review is large – there is an entire section devoted to a year-long implementation process.
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