Treasurer Jim Chalmers will today release the broad terms of reference for the first independent review of the Reserve Bank of Australia (RBA) in three decades.
The review will be undertaken by Professor Carolyn Wilkins, Professor Renee Fry-McKibbin and Dr Gordon de Brouwer.
Professor Carolyn Wilkins is an external member of the Financial Policy Committee of the Bank of England.
Professor Renee Fry-McKibbin is interim director of the Crawford School of Public Policy at the Australian National University.
Dr Gordon de Brouwer has worked at Treasury and the RBA with more than 35 years of experience.
The final report and recommendations are slated to be delivered to the government by March 2023.
The inquiry’s terms of reference is yet to be released publicly but reportedly includes the “interaction of monetary policy with fiscal and macroprudential policy, including during crises”, as well as the appropriateness of the bank’s inflation targeting.
The inquiry will examine the RBA’s performance in meeting its objectives, including its choice of tools, policy implementation, communication, and how trade-offs between different objectives have been managed.
The composition of the RBA’s board will also be considered amid concerns that it is too stacked with business interests and lacks professional economist or union representation.
It is encouraging that the RBA will be reviewed by an external panel. Phil Lowe’s proposal for the RBA to review itself was always ridiculous and lacked credibility.
Below are a list of topics that MB would like to see examined as part of the inquiry:
Monetary policy theory
- Does the efficient market hypothesis still hold currency for central banking?
- Why has inflation failed to materialise given monetarism says it should have done so long ago?
- How does debt fit with the picture in the long run? Is it time to abandon the Pitchford thesis?
- Does setting the cash rate and letting the market take care of the rest deliver national interest outcomes?
Monetary policy structure
- Is the separation of the RBA and APRA appropriate today?
- How can inflation goals be met in a future world of zero interest rates and currency devaluation?
- How should macroprudential and other unconventional tools complement the cash rate?
- Is an inflation target that excludes asset prices relevant any longer?
Monetary policy practice
- Should the RBA be free to comment on such issues as immigration and fiscal policy given they impact its job?
- Is the RBA being over-relied on to manage the economy, and should government fiscal policy take a more central role?
- Does a board of business rent-seekers infecting decision-making make sense?
- Has the RBA culture become insular and withdrawn from new ideas?
- Did the RBA’s 180-degree reversal on rates between March and May 2022 make sense?
- Was the RBA’s forward guidance, which basically promised to keep rates on hold until 2024 appropriate?
While the actual review won’t be nearly as comprehensive, hopefully it will cut across most of the issues. Though I doubt it.
