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21 Apr 2023 - Hedge Clippings | 21 April 2023



Hedge Clippings | 21 April 2023

This week Treasurer Jim Chalmers released his "independent" Review of the Reserve Bank of Australia and by all accounts he intends to accept all recommendations of the Review's three person expert panel. By and large the panel was broadly critical of the Bank board's structure and governance, with most of that criticism, implied or otherwise, and rightly or wrongly, falling on the shoulders of the RBA's embattled governor, Dr. Philip Lowe.

Lowe's been a convenient punching bag for a while now, but in particular, he's copped criticism from those who took as gospel his mid Covid forecast that the then cash rate of 0.1% wouldn't rise before 2024. History of course tells a different story, and hindsight is easy, but Lowe was only echoing what most central bankers were saying at the time at the height of the COVID panic, and before Putin invaded Ukraine.

However the expert panel's Review of the RBA went much further than that, and the ramifications will be significant, with the change in the Bank's mandate to take into account both managing inflation and, or while maintaining full employment. In future there will be dual boards, one responsible for governance, and another, whose members will have greater economic expertise, responsible for setting monetary policy. The external Monetary Policy Board will meet 8 times a year, with policy decisions to be more transparent, including a press conference after each meeting. Board members should speak publicly "occasionally" about the work of the Board.

Chalmers has wasted no time in appointing two new members of the Board, Iain Ross and Elana Ruben. This is in spite of the Review's recommendation that "External Monetary Policy Board members should be appointed through a transparent process. Positions should be advertised for expressions of interest, drawing on a matrix of required skills and experience. A panel comprising the Treasury Secretary, the Governor and a third party should recommend options for suitable candidates to the Treasurer."

We're not doubting Ross or Ruben's skills and experience, but we're not too sure about the transparency, or the positions being advertised for expressions of interest.

As for Philip Lowe's reaction to the criticism, implied or otherwise, he was his usual measured self, albeit no doubt through gritted teeth. In the RBA's official release when defending the organisation he heads up, he included this quote: 'The Review Panel rightly acknowledged the substantial contribution the Bank has made to Australia's economic success and the skills and dedication of the staff. It also acknowledged the RBA is highly regarded and respected in Australia and overseas.'

He was even more defensive at a press conference later, describing the overall review's finding as "kind of excellent" and saying the panel's comments about the workings of the board "didn't really resonate with me".

Lowe's term as RBA Governor is up in September, and although he's offered to continue (if asked), we suspect the writing's on the wall.

Meanwhile, tucked into the appendices at the back of the 282 page Review was a list of the 137 people who contacted, or were contacted by, the expert panel. Fourteen were members of parliament, including understandably both the Treasurer and Shadow Treasurer.  Of the remaining twelve, two (Costello and Frydenberg) were former Treasurers, leaving eight of the final ten being Independents, including Jacqui Lambie. We're not sure if it's relevant that Pauline Hanson wasn't on the list, but her absence probably didn't affect the outcome of the final report!

Overall (Philip Lowe excepted) the Review's findings have been well received, but particularly by Treasurer Jim Chalmers, who having initiated it, accepted 100% of its recommendations. It's a shame he won't take the same approach to the more important reform of Australia's taxation system, starting with his budget due next Tuesday week.

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