Albanese government to lob RBA reform legislation due this week

The Albanese government is set to introduce legislation this week to reform the Reserve Bank, as it battles to bring down stubborn inflation.

The Albanese government is set to introduce legislation this week to reform, strengthen and modernise the Reserve Bank.

The Treasury Laws Amendment (Reserve Bank Reforms) Bill 2023 will reinforce the RBA’s independence, clarify its role and modernise its structure, according to Treasurer Jim Chalmers.

It will also repeal Treasurer’s technical power to overrule the bank’s monetary policy decisions.

It comes as Dr Chalmers on Monday announced Bank of England official Andrew Hauser as the Reserve Bank’s next deputy governor, filling a role that has been empty since governor Michele Bullock was promoted to the top job in mid-September.

Mr Hauser, a 30-year veteran with the BoE, will be the first foreigner to hold such a high position within the RBA.

“His appointment strikes the right balance between providing deep central banking experience and offering a fresh, global perspective to the work of the RBA,” Dr Chalmers said.

The new legislation follows months of consultation with the RBA, the opposition and other stakeholders since the release of the RBA review in April.

It comes as the RBA board, under newly-appointed governor Michele Bullock, recently decided to restart interest rate hikes at its November meeting, increasing the cash rate target by 25 basis points to a 12-year high of 4.35 per cent due to as inflation remains “too high”.

The central bank has rapidly increased its cash rate target from a record low of 0.1 per cent since May 2022.

In that time, the RBA has gone from projecting that underlying inflation will be back down to the top of its 2-3 per cent target band by June 2024, to forecasting most recently that inflation won’t be back to the top of its target band until December 2025.

The review of the RBA came after its former governor, Philip Lowe, infamously indicated during the Covid-19 pandemic that interest rates were unlikely to be increased until “2024 at the earliest”.

That lead to a surge of borrowing for home loans at record low interest rates.

Widespread criticism of Dr Lowe’s leadership of the RBA followed, prompting the review.

Dr Chalmers said the review was the product of extensive consultation that included current and former RBA board members and staff, international experts and academics.

Treasurer Jim Chalmers at the Future Brisbane Summit at Howard Smith Wharves in Brisbane. Picture: Lyndon Mechielsen/Courier Mail

The Bill is set to implements the recommendations of the review that require legislation.

It will mandate that the RBA’s overarching objective is to “promote the economic prosperity and welfare of the people of Australia, both now and into the future”.

The bill will also confirm that monetary policy should have dual objectives of price stability and contributing to full employment, and reinforce the RBA’s independence.

It will also establish a Monetary Policy Board and a separate Governance Board, and clarify the RBA’s responsibility to contribute to financial system stability.

Dr Chalmers says it also establishes robust governance arrangements for the RBA.

The RBA review’s remaining recommendations are being implemented administratively by the government and the Reserve Bank, including through a new Statement on the Conduct of Monetary Policy that we aim to finalise next month.

“These changes are part of the Albanese government’s broader efforts to reform, renew and refocus the nation’s key economic institutions so that they can help meet current and future challenges,” Dr Chalmers said.