Login
iscover
The inquiry comes after criticism the bank misjudged the pace of inflation.
Newsletter
Treasurer announces review into the RBA’s monetary policy
21 July 2022
•
10 minute read
Treasurer Jim Chalmers has on Wednesday (20 July) announced the first review into the RBA since the 1990s.
You’re out of free articles for this month
To continue reading the rest of this article, please log in.
Create free account to get unlimited news articles and more!
The review would ensure the monetary policy framework of the RBA was the best it could be when making decisions that affect all Australians, said Dr Chalmers.
“The review will consider the RBA’s objectives, mandate, the interaction between monetary, fiscal and macroprudential policy, its governance, culture, operations, and more,” he said.
Treasury said one of the key components to be analysed was the RBA’s objectives, including the continued appropriateness of the inflation targeting framework.
The review will also assess the RBA’s performance in meeting its objectives including its choice of policy tools, its governance and accountability arrangements and its culture, management and recruitment processes.
The inquiry will be carried out by a three-person independent panel consisting of Carolyn Wilkins, Professor Renee Fry-McKibbin and Dr Gordon de Brouwer.
Ms Wilkins is a former senior deputy governor of the Bank of Canada, Professor Fry-Mckibbin is the interim director of the Crawford School of Public Policy at ANU and Dr de Brouwer is the secretary for Public Sector Reform.
The review comes after criticism was levelled at the RBA, and particularly governor Philip Lowe, after their failure to contain inflation between the 2-3 per cent target.
As recently as late 2021, Mr Lowe forecast interest rates would not rise until 2024.
Dr Chalmers said rapidly evolving economic conditions were to blame, not the governor.
“Governor Phil Lowe has talked about that at some length about that guidance that he gave and about how he considers the economic conditions to have changed faster than the bank anticipated,” he said on Channel Seven’s Sunrise program.
Later on Sky News Dr Chalmers denied the review would focus on the role of Mr Lowe.
“This review is not about Philip Lowe’s tenure as governor of the reserve bank,” he said.
“I have a mountain of respect for Phil Lowe, he’s someone who I work very closely with and he is on board when it comes to reviewing the Reserve Bank.
“It’s not an easy time to set interest rates and that’s because this challenge that we have right now with inflation is not just about too much demand in the economy, there’s a supply side challenge as well.”
Mr Lowe welcomed the review but cautioned that further rate rises were inevitable.
“It is an opportunity to take stock of our monetary policy arrangements and make sure that they are fit for purpose for the challenges ahead,” he said.
Mr Lowe said that the interest rates needed to rise to ensure the economy would not reach the levels of the inflation crisis in the 1970s.
“We need some moderation in aggregate demand and higher interest rates – even though many people don’t like that is part of the way we do that,” said Mr Lowe.
“Let’s just think of the alternative, if we don’t have higher interest rates then we’re going to have higher inflation persist.”
You need to be a member to post comments. Become a member for free today!
