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Australia’s central bank will have a monetary policy board and a governance board from March 2025, as the RBA undergoes a major shake-up of its structure.
The Reserve Bank of Australia (RBA) will have two boards from 1 March 2025 – one to set the cash rate and another for governance – in one of the largest shake-ups in its 63-year history.
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The changes – which formed part of the 51 recommendations of the wide-ranging review into the Reserve Bank (RBA), An RBA fit for the future – were first proposed and accepted by the federal government last year.
The recommendation to have a separate board to determine monetary policy was made after the review found that the existing board was mainly filled with members with business, rather than economic, backgrounds.
It was therefore suggested that an additional two new board members should be appointed to the board structure (currently nine people) who specialise in economics, labour markets, and financial markets to provide “diverse perspectives and knowledge”.
The Monetary Policy Board would therefore comprise the governor (who would chair the monetary policy board), the deputy governor, the treasury secretary, and six external members who would regularly communicate:
- How long inflation is expected to be materially away from the midpoint of the target and why.
- How long labour market conditions are expected to deviate from full employment and why.
- How it is balancing its two objectives.
While the reforms were initially scheduled to take effect on 1 July 2024, the legislation had been languishing in the Senate after the Coalition voiced concerns about the fact the Treasurer would have the power to appoint members to the new interest-rate-setting board (and was concerned about it being a “sack and stack” strategy). Meanwhile, the Greens had said they would only back the bill if the Treasurer used his power to reduce the offical cash rate – a proposal the government firmly rejected.
However, last week the Greens agreed to the third reading of the bill and it finally passed both houses on Friday (29 November), along with 11 other Treasury bills that passed the Senate in the final sitting week for Parliament (including the Help to Buy Scheme and Build-to-rent scheme) out of a total near record of 45 bills through the week.
What else will change?
In addition to implementing the board changes, the bill also brings in a new mandate for the central bank.
Its overarching objective will now be to “promote the economic prosperity and welfare of the people of Australia, both now and into the future”. (Previously, it was to “best contribute to the stability of the currency of Australia, the maintenance of full employment in Australia, and the economic prosperity and welfare of the people of Australia.”)
The bill also confirmed that monetary policy should have dual objectives of price stability and contributing to full employment and clarified that it is the RBA’s responsibility to contribute to financial system stability.
Speaking of the reforms, Treasurer Jim Chalmers said: “We’re ensuring Australia’s central bank remains world-class with a monetary policy framework fit to meet our current and future economic challenges.
“These laws will reinforce the Reserve Bank’s independence, clarify its mandate, and modernise its structures…
“This legislation will deliver the biggest set of reforms undertaken at the Reserve Bank in more than three decades.
“These changes are part of the Albanese Government’s broader efforts to reform, renew and refocus the nation’s key economic institutions so that they can help meet current and future challenges.”
He said that the government was “forced” to pass this legislation with the support of the crossbench after the opposition, the Liberals, and Nationals “refused to support these important reforms” over the years.
Shadow treasurer Angus Taylor MP hit out at the move, saying: “By voting with the Greens on the Reserve Bank rather than accept the Coalition’s clearly articulated red line issues, the Treasurer has confirmed he aligns with: calling for the RBA Governor to be sacked; calling for the RBA to direct Australian businesses access to finance; and calling for climate change to determine whether Australians should face higher interest rates.
“The Treasurer would rather associate himself with these views than guarantee the independence of the existing Reserve Bank Board
“This is just a taste of what is to come under a Labor-Greens Coalition and it is clear that every Greens economic policy is in play in a second-term Albanese Government.”
While the Reserve Bank has not issued a statement following the passage of the bill, speaking on Thursday (28 November) at the CEDA Annual Conference before the reforms passed, RBA governor Michele Bullock said: “[T]he concept is that the monetary policy board now can concentrate just on monetary policy. Having said that we've already made a lot of changes to the way we operate the Reserve Bank Board at the moment and we’re already leaning into some of these changes.
“I think there’s clearly going to be some structural things that are going to go on, but I think we’re already moving from that direction so we’re just going to keep on moving in that direction and, basically, [be] agile.”
[Related: RBA review calls for central bank to have 2 boards]
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