The Reserve Bank of Australia is about to get a major makeover following an independent review.
Up until May 2021, most Aussies didn’t know what the RBA really was or what they did.
But now, the RBA, and especially RBA Governor, Phillip Lowe has become a bit of a household celebrity - but not without some controversies.
The RBA or Reserve Bank of Australia makes economic decisions that impact millions of Australians.
They’re Australia’s central bank and their job is to keep the country’s economy and financial system stable.
But many Aussies including leading economists have a bit of beef with the RBA, and they reckon the RBA’s decision making isn’t meeting the mark.
What’s the beef?
Over the past 12 months, the RBA has been tackling rising inflation by increasing the cash rate from 0.1% to 3.85%.
That’s despite pinky promising in 2020 that interest rates won’t change until 2024.
The RBA, have been criticised for taking too long to start raising the cash rate, and when they finally started, they were criticised for going too hard too fast.
They've also been criticised for their rigid approach of using monetary policy (aka upping interest rates to bring down inflation), not considering alternatives, and being out of touch with the everyday Aussie’s struggles.
In July 2022, Treasurer Jim Chalmers announced that the RBA will be formally reviewed - with its culture, its board, and inflation targets scrutinised.
And it’s the first time since the 1990’s that a review of the RBA is happening.
Explain this review to me pls.
The RBA review is pretty much under a major performance review - kinda like you get from your boss at work, or a report card from school.
The review, which was released in April this year, highlights what the RBA is doing well, what they’re not doing well, and makes recommendations on how they should move forward.
The RBA review was done by a crew of world-leading economists that made a total of 51 recommendations - all of which were accepted by the government.
The five main changes to come out of the review are:
The idea is that the changes will hold the RBA up to a higher standard, and make sure the decisions they make are in the best interest of Australians.
So, what happens next? Will interest rates keep going up?
The RBA’s target inflation rate of 2-3% is still the same, so they will keep working towards that.
And at the moment, using interest rates is the main strategy.
But, the review has “opened doors” for a possible shift away from just using interest rates according to Renee Fry-McKibbin, one of the panellists who reviewed the RBA.
The panel looked at a number of alternative frameworks, but nothing has been landed on so far. It would take future reviews to decide if the RBA will potentially ditch monetary policy for a different strategy.
Sign up for Flux and join 100,000 members of the Flux family