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
Most of the developed countries arrived at same conclusion as Lowe but also had economists on their panel. There is no guarantee that adding extra economist’s on a panel would result in a different outcome.
reducing the number of decision-making meetings from 11 to eight per yearboosting the transparency of its decision-making process and holding it more accountable for those decisions.
This more to do with psychology lperception and it could result in larger increases in rate rises increases.
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.
That is the job of all governors over the world to concentrate on reigning in inflation.
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.
Chalmers is duck shoving his responsibility onto RBA…these extra people will be there to to con the public with positive messaging for his incompetence.
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.
