The Reserve Bank of Australia’s (RBA) structure makes mistakes likely. It concentrates responsibility on one fallible individual, the Governor, answerable to a Board of non-experts, with little requirement to explain or defend decisions in detail. Arguments are subject to little scrutiny, either internally or externally. More fundamentally, the RBA has a culture that places a low priority on getting the answers right. As a result, mistakes are frequent, persistent and costly. Among several examples, the RBA recently placed higher priority on stabilising household debt, rather than on its conventional goals of unemployment and inflation. Previously, it targeted the current account deficit.

To address these problems, the author argues that more monetary policy experts should be appointed to the RBA Board, and Board members should be individually accountable for their votes. The RBA should be required to be more transparent — in particular, it needs to provide detailed explanations for its decisions and show alternative projections for interest rates. The mandate of the RBA should be limited, to constrain mission creep and bureaucratic discretion.

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CIS Analysis Paper 36