RBA policy board changes are nothing to fear, says former assistant governor, Luci Ellis

Former RBA assistant governor and Westpac chief economist Luci Ellis says the concerns expressed by the Reserve Bank’s ex-governor, Ian Macfarlane, are understandable, but unnecessary.

Westpac chief economist Luci Ellis. Picture: Jane Dempster

Former Reserve Bank assistant governor Luci Ellis has rejected suggestions that the proposed new monetary policy setting board could radically change interest rate settings in Australia.

In an interview with The Australian, Ms Ellis, who is now chief economist with Westpac, said she believed the new appointees to the monetary policy setting board would take the same considered approach as the existing RBA board members had always done.

Former Reserve Bank governor Ian Macfarlane has expressed his concerns at the proposed new monetary policy decision-making board, recommended as part of a review, saying that it could undermine the authority of RBA governor Michele Bullock and pave the way for potential tensions between external members and the bank.

Mr Macfarlane said the proposed changes would be a “huge risk,” describing it as an “experiment” to set up a body where the two RBA members could be easily outvoted by six outsiders.

“I can totally understand why Ian has interpreted the review document the way he has,” Ms Ellis said.

“The way (the review committee) wrote (the recommendation) did leave them open to that interpretation.

(But) I think, as a practical outcome, the change will be smaller than he fears.

“I think it will be more business as usual in the sense that it’s going to be mostly the same people. They will be doing things in broadly similar ways.”

Mr Macfarlane said the proposed new nine-person monetary policy setting board, which will include the Secretary of the Treasury, will be a decision-making body under which the governor and the deputy governor could be outvoted by six newly appointed independent members.

He said it was not clear what type of people would be appointed to the new board, pointing out that the two RBA board appointments made by the federal government last year had both come from an ACTU background.

Former RBA governor Ian Macfarlane. Picture: Milan Scepanovic

Treasurer Jim Chalmers has defended the proposals, saying that the new monetary policy setting board would have the same member structure as the existing RBA board.

But, while successive federal treasurers appoint board members as their five-year terms come up, the establishment of a new board will provide the Albanese government with the opportunity to start with a clean slate of new members appointed by the Treasurer.

Ms Ellis, whose role as assistant governor (economic) saw her brief the RBA board each month from December 2016 to the middle of 2023, when she left, said the Treasurer had always appointed the members of the RBA board.

“It always been possible to ‘stack a board with your mates’ but the actual practice has been that that hasn’t been happening,” she said.

“The board that I worked with was extremely engaged, asked really good questions and were accustomed to making decisions under uncertainty.

“If you look at the most recent appointments, they have those characteristics as well.

“There is the same commitment to the public good and (people with) the same long history of making decisions under uncertainty and interest in economic issues.

“It is always possible for (the recommendations of the review) to turn out in the way that Ian Macfarlane fears, but as a practical outcome, I don’t think it will.”

Ms Ellis rejected suggestions that the new members could be tempted to adopt an easy stance on monetary policy to pump up the economy ahead of the 2025 election.

“I don’t think either side of politics wants to have an inappropriate set of board appointments,” she said.

“They want to have wise policy making members who can ask good questions and probe the staff and see the bigger picture.

“The kind of people who are being appointed to the RBA board, and have been appointed in the past, see the bigger picture.”

She said she expected that anyone being appointed to the new board would be “well aware that the RBA is there to do a job, which is to fulfil its mandate of aiming inflation towards the target range and sustaining full employment”.

“There’s no real benefit to shading those objectives with short-term politics. People will see through that instantly,” she said.

In an interview with The Australian’s Editor-at-Large, Paul Kelly, last September, Mr Macfarlane said the proposed structure of the new board would put the governor in a “weak” position which was not the case for any other central bank governor around the world.

He said the existing RBA board was in effect an advisory board for the bank, while the new monetary policy setting board, with six new outsiders as members, would be one which “proactively shapes policy decisions”.

“These two features are incompatible,” he said. “The result will be a board structure unlike any other central bank.

“We are being asked to entrust two thirds of the voting power on monetary policy to a group of people we don’t know anything about.

“They are referred to (in the review) as experts, but experts in what?

“The RBA is being asked to outsource its core competence — monetary policy — to a group of unknown competence.”