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RBA Is Now Faced With a Bigger Shock Than Inflation

A security guard uses his phone at Martin Place near the Reserve Bank of Australia (RBA) building in Sydney, Australia, on Monday, Sept. 6, 2021. Australia’s central bankers are set to revisit the question of whether to delay a planned taper of bond purchases as a worsening outbreak of the delta variant dims prospects of a rapid economic rebound. Photographer: David Gray/Bloomberg
A security guard uses his phone at Martin Place near the Reserve Bank of Australia (RBA) building in Sydney, Australia, on Monday, Sept. 6, 2021. Australia’s central bankers are set to revisit the question of whether to delay a planned taper of bond purchases as a worsening outbreak of the delta variant dims prospects of a rapid economic rebound. Photographer: David Gray/Bloomberg (Bloomberg)

If ever there was a time for the best and brightest to make policy, the epic struggle underway against inflation might be a good one. Yet Australia’s central bank is shackled to an anachronistic personnel selection that has left it hostage to an era when little scrutiny was expected — or demanded. Some change is almost certainly coming, but don’t look for an overnight revolution. 

Shielded by a decades-long run of growth before the pandemic, this is an uncomfortable moment for the Reserve Bank of Australia. Consumer price increases are the most rapid in more than a generation and officials have unleashed a series of big interest-rate hikes in an effort to contain them. That alone has brought some withering critiques of how the bank works. Now, an outside panel appointed to review pretty much every aspect of the bank’s structure, culture and operations is getting down to work. The RBA’s board won’t be spared an examination, according to an issue paper published on Thursday. Rightly so. Australia has lagged the world for a while.

The three people presiding over the RBA’s performance review questioned whether there are sufficient monetary experts on the nine-person board and too many business types. Also under consideration is whether votes of RBA directors should be published or dissents be disclosed without names. That these are even issues in 2022 is an indictment not just of the bank, but of successive governments — regardless of party — that have protected the RBA. (Appointments are made by the treasurer.)  

Not that monetary-credentialed officials are flawless. Inflation is much too high for comfort around the world, including in places like the US and UK that pack their rate-setting panels with economists and academics, as well as former bankers and administration officials. They make mistakes, too, and can also fall prey to groupthink, with dire consequences. But there’s a voting record published. People can count on being asked in interviews and after speeches if they hiked, advocated for a cut, or favored a pause. Even relatively junior members of the Federal Open Market Committee know it comes with the territory. Some seem to crave the attention — members of the Fed’s board of governors have no other job. Same with the Bank of England’s Monetary Policy Committee. The European Central Bank’s governing council is comprised of national central bankers and an executive board. 

In Australia, the central bank board’s full-time appointees are Governor Philip Lowe, and the deputy governor Michelle Bullock, who has held that job for five months. The board has been home to mining executives, retail bosses and heads of universities. There is typically a professional economist in the mix. They can keep outside directorships, including at publicly-traded corporations.

Governments say the composition is aimed at reflecting a broad mix of cultural and economic life. That is a worthy ambition, in theory. In practice, it can often mean that they don’t have the expertise, staff or resources to challenge the house view of RBA senior staff. (Also worthy of some review is the role of the top civil servant at Treasury, who sits on the board. Does that add or detract from perceptions of independence? By all means, have them in the room, but perhaps as an observer.)

Corporate life Down Under is often slammed as a cozy old-boys club. While five of the nine members of the RBA board are women, the panel also has a remit to review culture and recruitment as well as communications and the 2% to 3% inflation target. Bullock’s appointment — which makes her a contender to succeed Lowe when his term is up in a year — was welcome and too long coming. Janet Yellen became vice chair of the Fed in 2010 and chair in 2014; Alice Rivlin was vice chair from 1996 to 1999. Christine Lagarde leads the ECB. Women have helmed Malaysia’s central bank for most of this century. 

Such openness would inevitably invite further improvement in the RBA’s communications. One obvious hole is the absence of a press conference after each rate decision, a practice commonplace among developed and emerging economies alike. The RBA has made headway: Lowe often schedules a major speech in the days after the monetary policy announcement.  And a lot of talking isn’t necessarily a panacea. The stance of the Fed and ECB can sometimes be obscured by the number of their people in front of microphones. Not all reflect the views of their institution’s leadership.  

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. Previously, he was executive editor of Bloomberg News for economics.

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