Carolyn Wilkins, an international expert on monetary policy, is one of a three-member panel that will comprehensively review the Reserve Bank, including its objectives and the dialogue of monetary and fiscal policy.
Professor Wilkins is an external member of the Bank of England’s Financial Policy Committee and a former senior deputy governor of the Bank of Canada.
Other panelists are Professor Renee Fry-McKibbin, interim director of the Crawford School of Public Policy at the Australian National University, and Gordon de Brouwer, who has recently been appointed by the Government of Albany as Secretary of Public Sector Reform.
Read more: Rates climb to 1.35% – RBA on mission to reduce inflation
The terms of reference and the panelists will be formally announced by Treasurer Jim Chalmers at a news conference on Wednesday.
Chalmers said in a statement: “Australia faces a complex and rapidly changing economic environment as well as long-term economic challenges.
“This is an important opportunity to ensure that our monetary policy framework is doing the best we can to make the right calls in the interest of the Australian people and their economy.
“The review will consider the interactions between the RBA’s objectives, mandate, monetary, fiscal and macroprudential policy, its governance, culture, operations and more,” Chalmers said.
family in good condition
Meanwhile, in a speech on Tuesday, the bank’s deputy governor, Michelle Bullock, said the balance “as a whole family is in a pretty good position” to deal with interest rate hikes.
“There are large liquidity buffers across the region, most households have substantial equity in their housing properties, and in recent years lending standards have been more prudent and larger buffers have been created for interest rates to rise,” Bullock said.
“Most of the loans are with high-income households, who have the ability to repay their debt and many borrowers are already paying more than they need to.
“Also, those with very low fixed-rate loans have some time to prepare themselves for higher interest rates.”
Read more: RBA’s pre-COVID failure to cut interest rates sharply could cost 270,000 jobs
But although it was the overall situation, Bullock said some homes would be in a more difficult position.
“While overall it does not appear that there will be substantial financial stability risks arising from the household sector, the risk is slightly elevated. For some households, the interest rate hike will impact their debt repayment burden and cash flow.
“While the current strong growth in employment means that people will have jobs to pay off their mortgages, the way that risks work out will be affected by the future path of employment growth.
“This, along with the board’s assessment of the inflation outlook, will be important considerations in deciding the size and timing of future interest rate hikes.”
Bullock’s remarks come in the form of another rate hike early next month.
bipartisan review
The review of the bank has been supported by both sides of politics.
Chalmers said it was the bank’s first comprehensive investigation since the current monetary policy regime was introduced in the 1990s.
Critics have recently focused on the bank’s forecasts and the setting of monetary policy. Notably, it indicated that it would not raise interest rates before 2024, only to resort to doing so to stave off inflation.
An open letter from 12 leading economists, published in The Conversation in May, called for a review that was completely independent of both the government and the bank, ideally headed by an internationally recognized foreign expert.
Read more: Open letter: Review of RBA should be independent of government
“No institution can be expected to independently or credibly review itself,” the letter said. “A foreign perspective will bring valuable external scrutiny to the process and enable benchmarking of RBAs against their foreign counterparts.”
Lowe appeared to oppose the idea of an open review in March, when he said he expected one of the things to come out of it would be a Canadian-style bureaucratic review every five years.
“It’s apolitical, it’s kind of technical, and the government, through the Canadian Treasury, and the central bank again works on commitment,” he said.
Among those who signed the letter were economists Saul Eslake, Chris Richardson, Peter Tulip, Danielle Wood, Richard Holden, Steven Hamilton and former RBA board member Warwick McKibbin, who is married to Renee Fry-McKibbin, who will be on the review panel.
The composition of the board in the mix
The investigation will consult experts and the public and will report in March.
The central probe will examine the bank’s objectives, including “continued suitability of the inflation targeting framework”.
It will “look at the interaction of monetary policy with fiscal and macroprudential policy, including during crises and when monetary policy has limited space”.
While this would include macroprudential governance arrangements, the statutory role and functions of the Australian Prudential Regulation Authority are excluded.
Read more: Why the RBA should go easy on interest rate hikes: Inflation is already on a retreat and too hard risks recession
The investigation will assess how the bank is meeting its objectives, “having managed its choice of policy instruments, policy implementation, policy communication, and trade-offs between the various objectives”.
It will examine the governance and accountability of the bank. This would lead to the composition and structure of the board – opening up debate about the balance between expertise and other factors in appointments – and the process of appointments.
While the terms of reference also cover the management and recruitment of the bank, certain areas, including banknote production, will be excluded from the review.
