Business lobby backs RBA on inflation policy

The Business Council has pointed to inflation outcomes that had been ‘mostly consistent’ with the 2-3 per cent target through three decades of uninterrupted prosperity.

RBA Governor Dr Philip Lowe. Picture: NCA NewsWire / Gary Ramage

The Business Council of Australia has backed the Reserve Bank’s ­approach to managing the economy, pointing to inflation outcomes that had been “mostly consistent” with the 2-3 per cent target through three decades of uninterrupted prosperity.

“This suggests the fundamental statutory framework and mandate for the RBA is sound,” the BCA states in a submission to the RBA review panel.

But the lobby group recommends the statutory objectives should be limited to price stability and full employment, and that the “economic prosperity and welfare of the people of Australia” should be removed.

The BCA notes the RBA is “unusual in not separating governance of the bank from monetary policy decision-making”, and states that the RBA should create a separate committee charged with making rates decisions.

The RBA review panel on Thursday published 78 of the 114 public submissions it had received by the end of its consultation process on November 7.

In its submission, the Australian Council of Social Service criticised the RBA for prioritising low inflation over low unemployment. “This is unbalanced: for people on the lowest incomes, high inflation is a struggle but unemployment is a disaster,” the ACOSS submission states.

“A full employment target should be set independently of the inflation target, and they should be given equal weight,” it adds.

The ACTU, which made its submission public a month ago, also calls for an explicit full employment target, and says at least one RBA board member should have a union background.

The Australian Banking Association has not recommended any major changes to the RBA, and notes that it sees its independence as “critical to ensuring a well-functioning economy”.

The Centre for Independent Studies states that “the RBA would make fewer, less persistent mistakes if more monetary policy experts were appointed to the board, if board members publicly explained their votes, and if the bank were required to explain its decisions in more detail”.

The RBA review is a wide-ranging investigation into the RBA’s monetary policy framework, performance, governance, and culture, and is the first of its kind since the central bank began targeting inflation in the early 1990s.

Jim Chalmers on Thursday said he would decide whether to reappoint Reserve Bank governor Philip Lowe to the top job by the middle of next year.

Dr Lowe, whose seven-year term ends in September, has come under fire for failing to predict this year’s inflationary surge, and for delivering a series of eight rapid-fire rate hikes from May – despite saying through most of 2021 he did not expect rates to rise for “at least three years”.

If Dr Lowe’s term is not extended, he would be the first governor since Bernie Fraser in 1996 not to serve a decade in the role.

The Treasurer said Dr Lowe’s fate would in part depend on the findings from the ongoing RBA review, which is due to report in March, but denied the review constituted a “performance review” of the governor.

Dr Chalmers said he would “ordinarily come to a view” on whether to reappoint Dr Lowe by “around the middle of next year”, in consultation with the Prime Minister and the cabinet.

“Obviously, the Reserve Bank review in March will be relevant to those considerations and will feed into our thinking,” the Treasurer said.