The federal government will ultimately be able to intervene in Reserve Bank decisions despite independent reviewers calling for the scrapping of the treasurer’s power to override interest rate decisions.
Gordon de Brouwer, one of three experts selected to look under the hood at Australia’s central bank, said removing the ability of the treasurer to overrule RBA decisions would not leave the government unable to step in.
“Ultimately, at the end of the day, if the government disagrees with the decisions of the Reserve Bank, parliament is sovereign and parliament can intervene,” he said.
Dr de Brouwer said interfering with RBA decisions was better done through this mechanism to protect the central bank from the political issues of the day.
Based on recommendations in the review, the government plans to introduce laws to parliament by the end of the year to remove the treasurer’s right to veto decisions.
The power, outlined in section 11 of the RBA Act, has never been used.
The Greens plan to oppose the “fundamentally anti-democratic” shift but the opposition has broadly welcomed the recommendations and signalled willingness to cooperate on legislative changes.
Speaking at a Committee for Economic Development of Australia web conference, the three reviewers of the Reserve Bank stressed the integrity and capability of existing board members despite calling for the creation of a separate monetary policy board stacked with a broader range of experts.
Professor Carolyn A. Wilkins said the reviewers were conscious any criticism of the board would “feel personal” but it was not the intention of the recommendations.
The reviewers also responded to pushback from RBA governor Philip Lowe, who said his experience didn’t “fully resonate” with the suggestion that other board members were unable to challenge him.
The review panel did not sit in on the board meeting for fear of influencing the behaviour of board members and decision-making.
But they did speak with board members and RBA staff privately, which gave the reviewers confidence the board did not always have the information nor the time they needed to make the best calls.
In some cases, the board wasn’t fully engaged in the decisions at all, such as when unconventional monetary policy was used during the pandemic.
In the example of the central bank’s bond-buying program, Dr de Brouwer said there was an absence of any detailed economic and fiscal analysis on the impact of such a program, nor any analysis around how it would interact with other policies such as the yield target.
“If you’re thinking about the board process for the future, (what) you want to see is that they actually have the time, there are people who are going to be interested and engaged and push on that sort of material, and that the board has access to staff and a broader range of staff views on those things,” he said.
(Australian Associated Press)