The Reserve Bank of Australia (RBA) is undergoing a substantial restructuring, including the appointment of two new board members. These changes are part of a broader reform aimed at improving the bank’s ability to set interest rates. Starting in March, the RBA’s board will be divided into two separate entities: one focused on monetary policy, including setting the cash rate, and another dedicated to governance. Each board will consist of nine members.
Treasurer Jim Chalmers announced the appointments of Renée Fry-McKibbin, a panelist from the significant RBA review, and Marnie Baker, the former CEO of Bendigo and Adelaide Bank, to the new board responsible for interest rate decisions. This board will also include RBA Governor Michele Bullock, Deputy Governor Andrew Hauser, Treasury Secretary Steven Kennedy, and current members Carolyn Hewson, Ian Harper, Iain Ross, and Alison Watkins.
Meanwhile, Carol Schwartz and Elana Rubin, two existing board members, will transition to the governance board as deputy chair and member, respectively. Joining them are Jennifer Westacott, David Thodey, Danny Gilbert, and Swati Dave.
Chalmers emphasised that these appointments ensure stability across both boards, marking the most significant reforms at the Reserve Bank in over thirty years. He highlighted the balance between focusing on inflation and cost-of-living concerns while advancing necessary reforms.
The opposition has criticised the government’s decision to replace two members, with Shadow Treasurer Angus Taylor accusing the Labor government of attempting to influence interest rate decisions. Chalmers defended the appointments, citing a comprehensive selection process and extensive consultations, including discussions with the opposition since July.
The newly structured board will not be in place for the RBA’s meeting in February but will participate in the subsequent meeting in April.
Why is the RBA Undergoing Changes?
The decision to split the board was a key recommendation from an independent review of the RBA conducted in 2023. The review concluded that the existing board lacked the capacity to effectively challenge the central bank governor on interest rate matters. It noted that the board had not opposed an RBA executive recommendation in over a decade. Additionally, the review pointed out that the current external members, although distinguished leaders, collectively possessed less economic and financial market expertise than their counterparts in other central banks globally.
Other Implemented RBA Changes
Some recommendations from the review have already been implemented this year, such as reducing the number of meetings to eight annually, providing the board with more time for deliberation. RBA Governor Michele Bullock now holds a press conference after each meeting to explain the bank’s decisions to the public.
The cash rate has remained at 4.35% for over a year, its highest in more than a decade. During a recent press conference, Bullock stated that the bank did not explicitly consider altering the interest rate at their latest meeting, though they have left the possibility open. Economists from the Commonwealth Bank anticipate a rate cut as early as February, while NAB, Westpac, and ANZ predict the first reduction may occur in May.
Tags: #AustralianEconomy, #InterestRates, #MortgageRates, #RBAReform