What failure? Reserve Bank has notched up 30 years of success

If you look back over the past 30 years of the ‘modern’ RBA’ it has served the country very well and would require a damn good alternative to replace it.

These are very dangerous times for the Reserve Bank – indeed the most dangerous in its 60-year life-span.

And dangerous for basic rationality; and dangerous for you. Let me tell you, you do not want a severely constrained – or worse, a politically compromised – RBA to come out of the intersection of the review into the RBA and the end of current governor Philip Lowe’s term next September.

Bluntly, I want neither a lickspittle nor an ‘enthusiast’ to be appointed to succeed him in leading a ‘new age’ RBA.

Yes, the RBA might be the worst structure and mechanism for setting interest rates. Except, to misquote Churchill – and somewhat modify what he (didn’t) say - it’s still “better than all the rest”. With one, readers of this column might appreciate, possible exception. Where is this better manager of monetary policy?

The Fed? Hopelessly hostage to Wall St greed? And more specifically, completely unable to see inflation bubbling up in the US from the middle of last year? The European Central Bank? Same again with inflation; plus hopelessly compromised by the politics of the European Union and putting bailing out countries ahead of competent and appropriate monetary policy?

The ‘Old Lady of Threadneedle Street’, the Bank of England? Pu-leeze. Have you noticed the mess in the UK right now? With inflation over 10 per cent and the BoE at sixes and sevens at raising rates?

RBA Governor Philip Lowe. Picture: NCA NewsWire / Gary Ramage

What exactly is the supposed RBA failure that underwrites both demands for change in the way it operates - the mix of management analysis and proposal and a board of generalists for oversight and approval – and structure and staffing? What, that in the period up to Covid, inflation was coming in slightly below the bottom of the 2-3 per cent target.

Let me tell you – although unlike ‘economists and other so-called ‘experts’, you don’t really need ‘telling’ - Inflation of 1.8 per cent as against 2.2 per cent is not a problem; it’s a gift. Just quietly those ‘economists’ and other ‘experts’ might be about to find out why inflation of, say, 8 per cent, far less 10 per cent, is a little more uncomfortable.

Or is the ‘failure’, the ‘promise’? Not to raise interest rates until 2024.

We can have a debate over whether – especially with 20-20 hindsight – it was the best policy. But it was both a legitimate exercise and entirely valid in the context of March 2020. But even accepting it was wrong – I do not, to stress – is that sufficient basis for overturning the way the RBA is structured and operates? What, it started raising rates in May 2022 instead of February 2024? So, sack everybody and completely overturn everything about the RBA?

You better have a damn good alternative as its replacement. The idea that a panel of ‘experts’ should replace the current governor/board mix for setting rates leaves me utterly cold. I am left similarly chilled by the panel of ‘experts’ selected by trainee-treasurer Jim Chalmers to ‘review’ the RBA. I’d be more than happy to have the trio review Bunnings sausage sizzles. But the RBA? Thanks but no thanks.

If you look back over the period of the ‘modern’ RBA, from around 1990, as an institution it has served the country very well. Indeed the current hysteria – whether over suddenly high single-digit inflation (almost all of, imported and out of the RBA’s control) or ‘rapidly’ rising interest rates announces that most emphatically.

The single most telling factor is that when the RBA assesses interest rates, it is totally focused on what it judges to be best for the economy. And that means for you.

This is stunningly and damningly – for the others – different to the major central banks, which as I’ve noted, have other considerations forefront.