26 Apr RBA Review – it’s not clear the proposed reforms will lead to a better outcome for the Australian economy
Key Points:
- The independent Review of the RBA has recommended a significant change in the way the RBA does things in relation to the monetary policy framework, decision making, culture and governance at the RBA.
- The RBA made some decisions in recent times it would likely change with the clarity of hindsight. They were hard calls and partly reflected problems with the interaction with fiscal policy, which is beyond its control. And through the pandemic we also experienced a uniquely challenging period of extreme economic shocks, that also wrong-footed governments and economists.
- It’s unlikely though that the Review recommendations will significantly alter the outlook for monetary policy and, particularly, interest rates.
- Some of what is proposed by the Review has merit, but its not clear that the basic proposed central banking model, which is already practiced by several other central banks, is superior to what we have now.
- As the Review notes Australia’s economic performance has been very good since flexible inflation targeting was introduced and the RBA has contributed signficantly to that.
