Some of Australia’s top economists have penned a letter to Treasurer Jim Chalmers demanding that a review of the Reserve Bank (RBA) is independent of his government and headed by an “internationally recognised foreign expert”.
“Full independence is crucial if the review is to make the most of this unique opportunity. No institution can be expected to independently or credibly review itself,” the group of 12 leading economists, including Deloitte Access partner Chris Richardson, leading independent economist Saul Eslake and Grattan Institute chief executive Danielle Wood said.
“A foreign perspective would bring valuable external scrutiny to the process and enable a benchmarking of the RBA against its overseas counterparts.”
The full list of economists includes Queensland University economics professor Begoña Dominguez, Crawford School interim director Renée Fry-McKibbin, UNSW Business School professor Richard Holden, Centre for Independent Studies chief economist Peter Tulip, Crawford School of Public Policy distinguished professor Warwick McKibbin, professor of economics at the University of Queensland John Quiggin, George Washington University assistant professor Steven Hamilton and associate professor at UNSW Kristle Romero Cortés.
Ahead of the 2022 election, both Liberal and Labor were keen to put the RBA under the microscope.
The Organisation for Economic Co-operation and Development (OECD) has also been a vocal supporter of shining the light on the RBA’s methods, noting late last year that Australia’s central bank needs to be subject to a review following repeated failures to hit key economic targets.
And with Treasurer Chalmers announcing last week that details of the RBA review will be known soon, Australian economists now fear it will be too closely linked to the government.
The devil, they said, is in the detail.
“Poorly crafted terms of reference have the potential to undermine the efficacy of the review and therefore the future conduct of monetary policy,” the economists warned.
“The review presents a once-in-a-generation opportunity,” they continued.
The review, they suggested, should not be seen as a performance appraisal of a particular regime or individual—rather, it should speak to the performance of the fundamental institutions governing the decision-making process.
“Recent decades have seen the Australian economy buffeted by unprecedented external shocks, which have necessitated rapid adaptation of both monetary and fiscal policy. Meanwhile economies across the world have experienced a long-run secular decline in economic growth and real interest rates.
“Now is the time for a wide-ranging, independent review of our monetary policy framework and our monetary authority.”
The RBA has not been subject to a review since the early 1980s.
According to the group, the review should encompass the Reserve Bank Act, the Statement on the Conduct of Monetary Policy, and the RBA as an institution including its responsibilities, its structure and culture, the composition and appointment of its board, and the ways in which it communicates with the public.
It should also “explicitly consider the interaction between fiscal and monetary policy”.
The economists signed off with: “We are energised by the prospect of a review and optimistic for what it may achieve. Australia is counting on it.”
Responding to the letter via Twitter on Monday, Mr Chalmers said: As I work through the best model and terms of reference, weigh up all these issues and discuss with the PM and our colleagues, the RBA, Treasury and others, I’m grateful for the advice and input.”
“I’m keen to get the ball rolling relatively soon if we can. Thanks.”
