Analysis

Transparency should be cornerstone of Reserve Bank of Australia review

Gerard Cockburn
By Gerard Cockburn
August 6 2022 - 7:30pm
RBA governor Philip Lowe. Picture: Getty Images

Cost-of-living concerns have thrust the RBA review into the spotlight.

While sentiment about mortgages repayments has prompted backlash, the defining changes could affect how the central bank's board and governance is structured.

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A group of economists who wrote to the Treasurer calling for this review are spurring on a campaign for the board to have more expert voices and create greater transparency about how each member votes.

The current board consists of a number of business heavyweights, with the logic being corporate leaders are better at making prompt and swift decisions.

The economics world, however, believes the board needs more independent experts who understand the core function of the bank - monetary policy.

Despite board members saying sectoral interests were left at the door, there is belief if the voting records were made public it would show industry bias.

The argument of transparency also reflects the bank's conduct and how it manages market expectations through forward guidance.

Criticism has occurred over the bank's forecasts predicted rates were not going to move until at least 2024.

It was the only major central bank in the world to fix a date to the measures imposed during the pandemic.

The review should entail whether the bank should publish more detailed alternative projections and whether more weight should be put into its upside and downside risk assessments published in its quarterly update.

During the pandemic, the RBA's upside and downside scenarios garnered very little attention. This was despite the market already anticipating rate hikes were likely to begin in 2022 as a result of global factors prompting other countries to move.

The RBA's forecast would have had scenarios where the inevitable had happened. Wouldn't it have provided more certainty to markets, banks and lenders if multiple pathways were made public?

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Australia's economy was able to stave off most of the financial impacts caused by COVID-19.

This was mostly because the RBA and government threw the kitchen sink at the problem and eased pressures on the economy, such as liquidity, which allowed business to continue while in lockdown.

The review will look at how both fiscal and monetary policy can be better coordinated. Perhaps this is the key to getting the levers right for the next crisis?