Calls for greater RBA board transparency set to grow

If the RBA doesn’t cut interest rates in August, the issue of board transparency and its anonymity appears set to grow in prominence. The board is mostly faceless, with the majority never called to explain their decisions.

Reserve Bank governor Michele Bullock addresses the media in Sydney. Picture: Christian Gilles / NewsWire

The Reserve Bank of Australia was the source of widespread consternation a week ago, when it kept interest rates on hold despite financial markets and economists fully expecting it to deliver its third cut since the start of the year.

The intense upset that surrounded the policy meeting outcome could escalate quickly in the coming months, fuelling demands for greater transparency around the RBA’s policy-setting board itself.

The desire to know just who is standing in the way of lower mortgage interest rates could become shrill if the board again disappoints in August with a decision to keep rates unchanged.

The on-hold decision last week was described by one prominent economist as “uncharitable”, while Treasurer Jim Chalmers said the outcome disappointed millions of homebuyers.

RBA governor Michele Bullock was asked to reveal how she voted at the meeting, but she declined to show her hand, choosing instead to protect the anonymity of the board.

The episode also prompted heated questions about whether the RBA’s communications with markets had broken down, given that traders had thought a rate cut was a sure thing.

The public face of the RBA: governor Michele Bullock. Picture: Christian Gilles / NewsWire

The uproar has put greater attention on the individuals on the board, who are almost entirely unknown to the public, despite their immense power to shape economic and political fortunes.

The board is mostly faceless, with the majority never called to explain their decisions beyond the walls of the central bank.

The board members who do have a significant public profile include Bullock and, to a lesser extent, her deputy, Andrew Hauser.

The profile of Jenny Wilkinson, who only recently started in her new role as the Secretary to the Treasury, is mostly limited to Canberra and the community of market economists.

The remaining six people on the board are far from being the subject of dinner table debates. They are Marnie Baker, who comes from the financial services sector; Carolyn Hewson, a former investment banker; Iain Ross, a former head of Australia’s Fair Work Commission; Alison Watkins, who has served on the boards of major companies, and; academic economists Renee Fry-McKibbin and Ian Harper.

Quiet achievers all, they may face growing calls to reveal how they see the world.

Australians are up to their necks in mortgage debt, an environment that results in a continuous focus on the RBA much sharper than that experienced in most other countries.

There are plans for each of the board members to speak publicly once a year, which will build their profiles, but probably won’t shine much new light, especially if they merely repeat the RBA’s published commentary.

There are significant risks associated with giving the board free rein to speak. It might invite the potential for a direct contest with the ideas of the governor.

More worryingly for Canberra, board members might be directly critical of government policies such as excessive spending and poor productivity growth.

Such events would be certain to generate banner headlines and complicate the RBA’s communications.

There are also practical reasons why the board should be kept out of view.

Jonathan Kearns, chief economist at Challenger and a former RBA senior manager, said the non-executive members of the board aren’t full-time professionals and lack the backing of support staff offered by central banks elsewhere in the world.

Publishing attributed votes would also be tricky given that the Treasury Secretary is present on the board, he said.

All the board members could also be opened to claims of bias, Kearns added.

“Would someone on the board of a retailer voting for a cash rate cut be seen as serving their other interests?” he said.

If the RBA doesn’t cut interest rates in August, the issue of board transparency and its anonymity appears set to grow in prominence.

Write to James Glynn at [e-mail]