Wed Jul 12

Reserve Bank Governor Lowe announces changes to bank's operations as cabinet readies to approve who will lead it

Written by Michelle Grattan, Professorial Fellow, University of Canberra

Reserve Bank Governor Philip Lowe has announced a raft of reforms the bank will make following the recent review of its operations, as the government prepares to announce who will lead it after his term expires in September.

Lowe also reiterated that interest rates – held steady by the bank this month – might have to rise further to combat inflation.

It is generally expected Lowe will be replaced, when Treasurer Jim Chalmers takes his recommendation to cabinet. Contenders for the post include secretary of the finance department Jenny Wilkinson, bank deputy governor Michele Bullock, treasury secretary Steven Kennedy, head of the Australian Bureau of Statistics, David Gruen, and former RBA deputy governor Guy Debelle.

The government has accepted all the review’s recommendations ^[1] in principle. They include having two boards – a Monetary Policy Board with greater economic expertise to set monetary policy, and a Governance Board to oversee corporate governance.

Lowe, speaking at an Economics Society business lunch in Brisbane, when questioned said once again that he would be honoured to continue in his post if asked.

Chalmers said on Wednesday that he would soon take to cabinet his recommendation on the governorship.

In the changes the bank’s board has approved, from next year the board will meet eight times a year, rather than the present 11 times. The board meetings will also be longer.

“The less frequent and longer meetings will provide more time for the board to examine issues in detail and to have deeper discussions on monetary policy strategy,” Lowe said.

In other changes, the governor will face the media after each board meeting to explain its decision on rates. The post-meeting statement will be in the name of the board, rather than the governor, as at present.

All board members will have the opportunity to attend an internal staff meeting some time before a board meeting, allowing them to question a broader range of staff.

The board will oversee the bank’s research agenda as it relates to monetary policy and aspects of financial stability.

Lowe said some other recommendations from the review were being left for after “the legislative process has been completed and the new Monetary Policy Board is up and running”. The review suggested this take office in July 2024.

These recommendations include the publication of an unattributed vote count on decisions; all board members making public appearances to discuss their thinking and decisions on monetary policy, and the establishment of an expert advisory group to engage with the board.

“In my view, it is right to allow the new board to consider these issues and make its own decisions,” Lowe said.

On interest rates, Lowe was – as usual – adamant that the bank would do whatever was needed to bring down inflation to the target range of 2-3%.

“Our priority remains to ensure this period of high inflation is only temporary,” he said. “If high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment.

"It is for these reasons that the board is resolute in its determination to return inflation to target within a reasonable timeframe and will do what is necessary to achieve that.”

Chalmers told reporters the governor appointment “is one of the biggest appointments that the government will make. It’s a big job and it’s a big call.” He said he had had discussions about the appointment with shadow treasurer Angus Taylor.

Lowe will be with Chalmers at the G20 finance ministers meeting in India early next week.