RBA review to be implemented end of 2023: Treasury

Speaking before the economics legislation committee on Wednesday (25 October 25), Dr Steven Kennedy PSM, secretary to the Treasury, stated that the government is in the process of implementing the recommendations of the review of the Reserve Bank of Australia.

He said: “We are working toward introducing the necessary legislation before the end of the year, and the Government will agree on a new Statement on the Conduct of Monetary Policy with the Bank in the coming months.”

The Treasurer released the review’s report on 20 April 2023 and the government agreed in principle with the review’s 51 recommendations.

The recommendations cover five main themes: a clearer monetary policy framework, stronger monetary policy decision making and accountability, an open and dynamic RBA, more robust corporate governance, and ensuring RBA leaders drive institutional and cultural change.

The RBA has previously welcomed and agreed to some recommendations, such as reducing the number of monetary policy meetings from 11 to eight per year, allowing for “more in-depth discussions”, including forecasts, strategy and other monetary policy issues.

Other recommendations is to transition from one board that oversees everything to one that sets monetary policy and the cash rate and another that oversees the bank’s governance and management, including HR, technology and risk management.

Among the recommendations of the review for the government are as follows:

• The federal government should legislate that the RBA has dual monetary policy objectives of price stability and full employment.
• The federal government should remove the RBA’s power to direct commercial banks’ lending as it is not necessary for the RBA to achieve its core mandate.
• The government and RBA Monetary Policy Board should instigate a formal review of the monetary policy framework and tools every five years.
• The government should specify in the Reserve Bank Act 1959 that the RBA has a responsibility to contribute to financial system stability, in cooperation with other government agencies, especially the Australian Prudential Regulation Authority (APRA).
• The government should not make the transition to a low carbon economy an explicit objective of monetary policy.
• The federal government should establish a governance board that is separate from the monetary policy board and is responsible for overseeing the management of the RBA.
• The federal government should constitute a new monetary policy board that is responsible for monetary policy decisions and overseeing the RBA’s contribution to financial system stability (except payments system policy), but not broader corporate governance.
• The federal government and a newly established monetary policy board should instigate a formal review of the monetary policy framework and tools every five years.
• The federal government should implement any RBA review recommendations that require legislation by mid-2024.
• The federal government should make any new RBA board appointments by mid-2024.

[Related: RBA to have 2 boards as part of major shake-up]