Jim Chalmers has chance to build RBA rate-setting board with enormous firepower

As the Reserve Bank of Australia prepares to move forward under a new dual-board structure from early next year, there’s far more at stake than meets the eye.

Treasurer Jim Chalmers and RBA governor Michelle Bullock.

As the Reserve Bank of Australia prepares to move forward under a new dual-board structure from early next year, there’s far more at stake than meets the eye.

One board will deal with governance matters affecting the diverse operations of the central bank, while the latter will determine the setting of interest rates.

The new arrangements will replace the current single-board structure that was deemed unfit for purpose by a recent independent review.

The new monetary-policy board will draw intense scrutiny from the media, the general public and Canberra given its power to change interest rates, an issue that is never far from the general consciousness in Australia, where mortgage debt is sky high.

Treasurer Jim Chalmers has the task of appointing six members from outside the RBA, who will be joined by governor Michele Bullock, deputy governor Andrew Hauser, and Treasury Secretary Steven Kennedy.

While it should be a simple task to find six high-powered economic minds skilled enough to contest the assertions of the RBA and speak publicly on the economic debate, it will trickier than it looks.

To protect the independence of the central bank, Chalmers must avoid appointing anybody who might bring with them political baggage and bias. The outcry would be loud and undermine the policy-setting process.

After all, nobody wants to see the new board staffed by former unionists with a possible eagerness to undermine the orthodoxy that has guided interest-rate setting for decades. Equally, nobody wants to see it stacked with ideologues from conservative think tanks that might be short on sensitivity and empathy – qualities that are essential to the job.

Done properly, the Treasurer could put together a board with enormous firepower capable of doing a lot of good while improving transparency around rate setting.

So who to choose?

Economist Saul Eslake. Picture: Chris Kidd

Thankfully, there’s a deep pool of talent to pick from, featuring a large group of former chief economists from the country’s major banks.

With many decades of experience of sifting through high-frequency data, their resumes would be hard to top. Moreover, they appear to be largely free of political taint, and likely keen to be involved.

Many would see it as the culmination of their careers and an opportunity to better the country.

Topping the list of candidates is Saul Eslake, a former chief economist at ANZ and Bank of America Merrill Lynch, who would bring an unmatched presence and wisdom to the committee.

Other obvious picks include Bill Evans, who stepped down as chief economist at Westpac in 2023 after decades in the role; Michael Blythe, the former chief economist at the Commonwealth Bank of Australia; and Alan Oster, who will end a 32-year career as chief economist at National Australia Bank in March.

All have vast experience in answering the puzzle of where interest rates should travel in the future. That’s a fundamental question for any investment institution.

The list should also include Stephen Halmarick, who will soon depart CBA, as well as Ivan Colhoun, who recently left NAB and has a wealth of experience shaping economic forecasts for major private-sector companies.

Another top pick might be Shane Oliver, who has 40 years of experience as an economist, 30 of them as chief economist at AMP; or Stephen Miller, formerly of Bankers Trust and global investment giant BlackRock.

While some have argued that retaining any of the current board members would be a mistake given the criticisms levelled at them in the recent RBA review, economist Ian Harper, a former dean at the Melbourne Business School, should keep his seat.

Still, John Simon, who led the RBA’s research department for over a decade, has said the current board has failed in its job of contesting the central bank’s narrative, so none should be retained.

“More expertise is needed among the external board members … They need to be willing and able to push back against ideas that are not supported by evidence,” Simon added.

For Chalmers, this is an opportunity to build a policy-setting committee capable of driving a richer public debate, while challenging decisions around monetary policy, and fiscal largesse.

A committee with that kind of muscle would also help shape the economic reform agenda Australia so desperately needs.

The Wall Street Journal