RBA to embark on ‘significant’ cultural change

The Reserve Bank of Australia (RBA) has announced its decision to implement 10 recommendations from a wide-ranging review, including meeting fewer times a year.

The review, titled “An RBA Fit for the Future”, was initiated by the Morrison government and evaluated the central bank’s performance over the past three decades, with a final report presented to the Treasurer on 31 March 2023.

In an address to the Economic Society of Australia on Wednesday (12 July) in Brisbane, governor Philip Lowe acknowledged the review’s findings that Australia’s current monetary policy framework is suitable and “fit for purpose” and praised the RBA’s dedicated and skilled staff who perform their jobs to a high standard.

“But as times change, we, too, need to change,” Mr Lowe said.

Among the changes include reducing the number of monetary board meetings down to eight (from the current 11), holding a media conference following the decision, and the statement of monetary policy to be delivered by the board, rather than the governor.

“The less frequent and longer meetings will provide more time for the board to examine issues in detail and to have deeper discussions on monetary policy strategy,” Mr Lowe said.

In reference to other matters, such as engaging an expert advisory group and regarding the board members ‘making regular appearances’, Mr Lowe said these “are best considered after the legislative process has been completed and the new Monetary Policy Board is up and running”.

“This will avoid the current board locking the new board into a particular approach,” Mr Lowe said.

Other recommendations, yet to be addressed

However, there was little mention of the recommendation to establish a second ‘governance’ board, with the responsibility for overseeing the management.

Instead, Mr Lowe acknowledged the board was working through other recommendations and they will report on these in due course.

Regarding the concerns raised over potential conflicts of interest with the management of board members, the RBA agreed to strengthen standards.

“The board has reviewed the Code of Conduct and agreed to strengthen the already strong standards by making it crystal clear that members, and entities they control, are prohibited from transacting in interest rate and foreign exchange derivatives and from active trading in financial instruments," Mr Lowe said.

The RBA review highlighted the need for a more “open and dynamic RBA”, by empowering the staff and optimising performance.

Mr Lowe said the central bank will embark “on a significant program of cultural change”.

For example, the RBA will update the leadership goals that apply to all managers to make it “clearer that they are expected to create an inclusive environment where staff can share ideas in an open and constructive way”.

Mr Lowe added that the RBA is currently working to recruit a chief operating officer, as per the recommendations.

Overall, the central bank has agreed action to the following 10 decisions:

1. From 2024, the board will meet eight times a year, rather than 11 times as is currently the case. Four of the meetings will be on the first Tuesday of February, May, August, and November, with the others held in between. The exact dates for 2024 will be published soon.
2. The board meetings will be longer than is currently the case, they will typically start on the Monday afternoon and then continue on the Tuesday morning. The outcome of the meeting will be announced at 2.30 pm on the second day, typically a Tuesday as is the case now.
3. All board members will have the opportunity to attend an internal staff meeting sometime before the board meeting. This will allow them to hear directly from, and ask questions of, a broader range of staff.
4. The post-meeting statement announcing the decision will be issued by the board, not, as is currently the case, the governor.
5. The governor will hold a media conference after each board meeting to explain the decision. The media conference is expected to be held at 3.30 pm.
6. The quarterly Statement on Monetary Policy will be released at the same time as the outcome of the board meeting (in February, May, August, and November), rather than on the following Friday as is currently the case. Given this and other changes, we are reviewing the structure of this document.
7. The board, rather than just the governor, will be the signatory to the Statement on the Conduct of Monetary Policy, which is the document that records the common understanding on monetary policy between the RBA and the Australian government. The new statement is expected to be finalised later this year.
8. The board will oversee the bank’s research agenda as it relates to monetary policy and aspects of financial stability.
9. The bank will continue with its current approach to climate change analysis, focusing on the implications of climate change for the economy, inflation, and the financial system.
10. The board will work with the Treasury to undertake five-yearly open and transparent reviews of the monetary policy framework.

Treasury to vote on Governor's appointment

With the Governor's term coming to an end (17 September), the Treasury is expected to make a decision this month on whether Mr Lowe will be reappointed to the top job, among a list of potential candidates.

Treasurer Jim Chalmers confirmed that he would present his recommendation to the federal cabinet regarding the future of Mr Lowe beyond the expiration of his seven-year term.

“I'll be taking to Cabinet my recommendation for the appointment of the Governor of the Reserve Bank,” Mr Chalmers said.

He said he had consulted with opposition counterpart Angus Taylor and would work with cabinet colleagues to make the best decision for the nation.

“I don't want to front‑run or pre‑empt the timing or the nature of that conversation with my colleagues - this is a decision for the Cabinet to take on my recommendation.”

“The Reserve Bank review and the appointment of a governor is not about undermining the independence of the Reserve Bank – it’s about enhancing it.”

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