Reserve Bank of Australia set to undergo a major shake up

The Reserve Bank is set to be split into two boards, with one solely focused on interest rates, in a major shake-up idea expected to be adopted by the government.

On Thursday Treasurer Jim Chalmers will release the RBA review report – “An RBA fit for the future” – and is expected to announce the government’s in-principle agreement with all 51 recommendations.

The review was commissioned in July last year, in a bid to strengthen the central bank amid an increasingly complex global economic landscape.

Over the past year, the central bank and Governor Philip Lowe have came under intense scrutiny for how monetary policy decisions – particularly rate rises – have been communicated.

Dr Lowe told Australians as late as November 2021 that the bank was likely to hold the cash rate steady at 0.1 per cent until 2024.

Since May 2022, the cash rate has risen to 3.6 per cent.

The review will recommend establishing two separate boards: one concerned with monetary policy and a separate governance board.

The review is expected to reveal doing so will ensure decision making and governance agreements are effective.

The monetary policy board will be primarily focused on managing interest rates, especially as the RBA seeks to tame inflation back to the two to three per cent target.

The other board will focus on the rest of the RBA’s “governance” remit, including printing bank notes.

JIM CHALMERS

Some of the recommendations will require legislative change, while some will be incumbent on the RBA to implement given it operates monetary policy independently.

Dr Chalmers said he looked forward to working across the parliament and with the RBA to implement the dozens of recommendations.

“The review is all about ensuring Australia’s central bank and monetary policy arrangements are as strong and effective as they can be into the future,” he said.

Dr Chalmers has engaged shadow treasurer Angus Taylor during the review process.

Mr Taylor said it was “essential” the review’s recommendations were agreeable for both major parties.

“This will ensure certainty around the outcome of this review. With inflation at its highest level in decades, this is in the best interests of Australians,” Mr Taylor said.

“The Coalition’s input into this review has been centred on ensuring the Reserve Bank’s monetary policy approach remains laser-focused on returning inflation to the 2-3 per cent target, properly recognises the interaction of monetary and fiscal policy, and recognising any governance reforms need to be balanced, appropriately staged, preserve the Reserve Bank’s independence, and bolster the Reserve Bank’s capabilities.

“The Reserve Bank of Australia has served Australia well for a long period of time. We want to make sure this crucial economic institution is maintained and that there are no distractions getting in the way of its core objectives.”

During the review process, more than 1500 contributions were received.