OPINION An RBA fit for the future has suggested that the central bank should have two boards and should meet eight rather than 11 times a year to allow for “more in-depth discussions”. But would this be a help or a hindrance to mortgagors?
On Thursday (20 April), federal Treasurer Jim Chalmers released the full report of the recent review of the Reserve Bank of Australia (RBA), An RBA fit for the future.
Undertaken by a panel of three “independent experts” including former senior deputy governor to the Bank of Canada, Carolyn Wilkins; Australian National University economics professor Renée Fry‑McKibbin; and Australian economist Dr Gordon de Brouwer, the review put forward 51 recommendations to overhaul how the central bank operates.
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It included recommendations to create two separate boards (one for monetary policy and one for governance), introduce more external board members as well as the recommendation that the monetary policy board should meet eight times a year, rather than 11 times (as currently).
According to the reviewers, the reduction in meetings would “allow sufficient time between initial discussion of the issues and the final decision for members to reflect on the issues and request follow-up analysis as necessary” and provide opportunities for the monetary policy board to hear the views of a wider range of RBA staff on issues that would inform the decision.
The report read: “Reserve Bank board meetings are more frequent than at comparable central banks but are shorter. The Reserve Bank board meets 11 times a year, compared with eight times a year in most comparable central banks.
“The Reserve Bank Board meets for a little under four hours and has limited policy discussion outside of this. At other central banks, external monetary policy decision-makers commit more time to the policy process.
“The frequency and length of Reserve Bank Board meetings limits the depth of research and analysis that RBA staff members have time to prepare and debate among themselves before it is sent to the Reserve Bank board. For example, senior staff members in policy areas meet to discuss at least the documents on economic conditions and financial markets before they are sent to the Reserve Bank board ... but there is only one day to take on any comments. This, in turn, limits the depth of analysis the board receives and the time for internal debate and discussion about policy strategy and communication.
“The Review recommends changes to board processes to better support policy discussions and decisions and to increase debate and challenge by decision-makers.”
Speaking to The Adviser for the In Focus podcast about the recommendation to reduce RBA meetings to just eight a year, Phillip Tarrant, the managing editor of property and financial services at Momentum Media, said: “Does that mean there’ll be less chance for them to move on rates, and when they do move on rates — upwards or downwards — [will] they be, in aggregate, bigger?”
Mr Tarrant added, however, that the cash rate decision coming eight times a year rather than 11 times a year may “have its merit” as it would provide time for any rate changes to flow through to mortgages and give the RBA the opportunity to see “whether there’s any change in spending habits and inflationary pressures”.
“They can actually let these decisions breathe … give it more time in the market to work out whether or not it’s taken effect. So I reckon they’re buying themselves time by doing that, which should help with their decision-making on whether or not they need to go up or down, moving forward,” he said.
“Bad decisions are made if they’re rushed. If you’re moving on the immediacy of decision-making without seeing the actual impact of that, that is when you just exacerbate these problems moving forward … You got to let things percolate.”
According to the managing editor of property and financial services, having less frequent monetary board meetings would also enable borrowers to better manage their finances.
He told the In Focus podcast: “If interest rates are going up, it’s very hard to recalibrate your family balance sheet, your family expenses, on a month-by-month basis.
“If you have three months to do that, it’s going to give you more time to ameliorate some of the impacts around rising interest rates.
“So if you give consumers more time to absorb the impact of interest rate rises, I think that’s a lot more positive. Because it’s fatiguing having the uncertainty. For a lot of Australians who are already redlining on their interest repayments right now, not knowing what’s going to happen next month [is hard].
“If you give them two to three months … that’s going to be much easier for them.”
Watch the full video of the In Focus podcast to learn more about the RBA review here:
[Related: In Focus: Reviewing the RBA review]
