Woe to those signing up to the new RBA board

Treasurer Jim Chalmers has moved to retool the central bank by throwing out its antiquated policy-setting board in favour of a modernised committee of experts that will look and operate a lot like similar bodies at the Bank of England and the Bank of Canada.

To be sure, it feels as if the windows have been thrown open to allow a new breeze to flow through the corridors of the Reserve Bank, reinvigorating the musty institution that has grown stale in its thinking.

For the Australians that have suffered through a record-breaking streak of 10 consecutive interest rate increases in the past year, there’s now hope that perhaps the new board of experts will restore order by easing pressure on a crippled mortgage belt.

The problem with all of that is very little of it is true. And worryingly, the road ahead for monetary policy has potentially been made much less clear.

For starters, there’s every chance that the new board experts might push back on the current thrust of RBA policy, which is to preserve as much of the stunning employment gains of recent years, in favour of moves to stomp on inflation more aggressively.

The so-called experts will probably want to show their inflation-fighting teeth early in order to shore up their credibility with global financial markets.

That might involve further interest rate increases that could drive up the risk of a recession, while the 50-year low in unemployment might well be committed to history.

In unusually uncertain times for the global economy, Australia has in fact embraced more un­certainty.

The outgoing board system wasn’t perfect, but it did help deliver a record expansion in the economy and a low unemployment rate nobody under 55 in Australia can remember seeing before.

There’s also a dark side to the changes at the RBA, and the incoming experts need to be cognisant of it.

Australians can act very childishly when it comes to responding to the often uncomfortable policy decisions made by its central bank.

The hostility that has been directed at governor Philip Lowe over the last year by media, politicians and society in general has been severe.

Dr Lowe, tasked with fighting off inflation by raising interest rates, has been subjected to the worst kind of personal threats, while his family has had to put up with aggressive media scrums gathered on the front lawn of his suburban home on the mornings of successive monthly policy meetings.

The rise in interest rates over the past year, which has been moderate when compared to many other major central banks, has prompted calls for Dr Lowe to resign, while his picture has been paraded on the pages of tabloid newspapers.

The spectacle has heightened concerns about Dr Lowe’s security. He is a public figure and should expect some public reaction, but not this.

The anger can be sourced to elevated household debt and a love affair many Australians have with acquiring extravagantly priced investment properties.

The record pace of interest rate increases has been painful, and the full impact has yet to flow through.

Dr Lowe’s vindication may well arrive next week when first quarter inflation data likely shows that the biggest surge in consumer prices in 30 years peaked late last year.

That would confirm that the policy tightening hit the desired target, and suggest that if interest rates are to rise further, those moves will be limited.

The new higher profile RBA experts will be in the firing line of this culture of hostility, especially if they decide to take a more aggressive line on inflation that the central bank’s current time line of allowing inflation to remain above target until mid-2025 looks to be too long.

Life could be made very difficult for any incoming experts touting a hawkish narrative in the village square.

Dow Jones Newswires