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Originally posted by MirCat
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The review into the Reserve Bank of Australia has just been published by Treasurer Jim Chalmers, and it’s a blockbuster.The review has made 51 recommendations including: taking away power over interest rates from the Reserve Bank board (which has traditionally been dominated by non-economists, usually corporate executives) and devolving it to a panel of experts The most likely explanation is that the bank was focused too much on stabilising the financial system and too little on boosting the economy.The bank was setting interest rates using its gut instead of its brain, in an almost literal sense – it was not doing what its computer model suggested it should do. But the underlying problem – that the board was populated by monetary policy amateurs rather than experts – remained the same.The review concluded that monetary policy is a complex area of public policy and is best run by a team of experts who are highly informed about the current state of the economy. This lack of reliance on expertise might help explain why the bank made the ill-fated decision to indicate that interest rates would remain near 0% until 2024.During the pandemic, bank staff explicitly recommended against forecasting how long interest rates would remain at 0%.But the bank board ignored this advice and instead set out a three-year projection for how long rates would stay low.When the economy recovered far quicker than expected and interest rates had to rise, many Australians interpreted the about-face as a broken promise.
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"But the underlying problem – that the board was populated by monetary policy amateurs rather than experts – remained the same."
