Review of RBA suggests board lose ability to set interest rates

The RBA board is likely to be stripped of control to set the cash rate, under review recommendations expected to be announced today.

Treasurer Jim Chalmers last year called for a review of the RBA board’s decision making processes, which have seen 10 consecutive interest rate rises since May 2022, as well as the way information is conveyed to the public.

The independent review undertaken by three experts is understood to have recommended setting up a Monetary Policy Board to set interest rates and a separate Governance Board in a shake up described as the biggest in a generation. Rather than focusing on interest rates, the report has said the RBA board should instead look to the operation of the bank as its main purpose. Meetings to discuss the cash rate will be reduced from 11 per year (there is no meeting in January) to eight. The report also recommended that the governor of the RBA appear at a press conference after each meeting the better explain its decisions to the public.

Deloitte Access Economics partner Chris Richardson has backed the decision. His support follows comments in a Deloitte report earlier this week describing recent interest rate rises as ‘unnecessary’, as they placed further pressure on mortgage holders.

The RBA Board has repeatedly referenced high inflation as its reasoning for continuing to increase the cash rate, which lead author and Deloitte Access Economics Partner Stephen Smith said had left the Australian economy ‘finely poised’.

The decision to shift decision making from the RBA board to a separate board is in line with the modus operandi of other central banks around the world, including the UK and Canada.

The recommendations follow a tough year for mortgage holders, which have seen rates rise by 3.5 percent since April 2022. This is despite RBA governor Philip Lowe telling borrowers in 2021 that rates would remain low until ‘at least 2024’.

Prime Minister Anthony Albanese has called for bipartisan support for the recommendations.

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Review of RBA suggests board lose ability to set interest rates

The biggest shake up of economic governance in Australia in decades follows a year of consecutive interest rate hikes

International AI strategist Justin Kabbani will headline the Kanebridge Property Summit in Sydney on June 18, with tickets selling fast.