Australia is set to introduce legislation to give the Reserve Bank of Australia’s independent expert members more influence in setting interest rates with the establishment of a new specialist monetary policy board.
Legislation for Central Bank Reform
The Australian government is planning to introduce a new bill that would grant the central bank’s independent expert members greater responsibility for determining interest rates through the creation of a specialized monetary policy board. Treasurer Jim Chalmers announced the legislation, which aims to implement the recommendations of a recent review of the Reserve Bank of Australia (RBA).
Scope of Reforms
The proposed bill follows the release of a review in April, which suggested various changes to the RBA, including the establishment of a separate board for day-to-day operations, reduction in policy meetings, and a simplified dual mandate of price stability and full employment, aligning the bank with other major central banks.
Independence of the Central Bank
Treasurer Chalmers emphasized that the legislation will reinforce the independence of the RBA from the government, including the removal of the treasurer’s power to override monetary policy decisions. This move aims to ensure that Australia’s central bank maintains a world-class monetary policy framework to address current and future economic challenges.
Formation of Monetary Policy Board
The review recommended the creation of a new Monetary Policy Board (MPB) comprising six external members with expertise in macroeconomics, the financial system, labor markets, and the supply side of the economy. A key aspect of the reforms is the separation of the RBA’s board into one dedicated to monetary policy and another for governance, with the details of the new MPB to be finalized in the coming month.
Timeline for Changes
The proposed changes are intended to take effect on July 1, 2024, with Treasurer Chalmers expressing support for all 51 recommendations outlined in the review initiated in July 2022. The alterations seek to align Australia’s central bank with international best practices and modernize its operations.