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A 'new era' for the Reserve Bank?

7 Apr 2008

On 6 December 2007, the incoming Labor government announced a 'new era' for the Reserve Bank of Australia (RBA) with revised arrangements for appointing the bank's senior officers and external board members, in conjunction with a new joint 'Statement on the Conduct of Monetary Policy' between the bank and the government. On the previous day, the RBA also announced new arrangements for communicating with the public about monetary policy. The RBA board's press release was careful to indicate that these measures had been under consideration for 'some months.' However, their announcement at the first RBA board meeting after the federal election was hardly coincidental. Reform of the governance arrangements for the RBA had been expected to be a priority for the new government after more than ten years of neglect under the former treasurer, Peter Costello. The RBA had also fallen to the bottom of international rankings of central bank transparency.

While in some respects an improvement, the new arrangements leave the RBA operating under an outdated and internationally anomalous governance structure that is incompatible with modern demands for central bank transparency and accountability. They also leave in place many of the flaws from previous iterations of the joint 'Statement on the Conduct of Monetary Policy' since August 1996. The new arrangements may serve to entrench bureaucratic influence on monetary policy and weaken the RBA's account­ability for inflation at a time when it is presiding over the worst underlying inflation outcomes since the current economic expansion began sixteen years ago.

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