By Rachel Clun
Reserve Bank governor Philip Lowe has deferred several major reforms proposed by the independent review until next year as the treasurer said he was poised to decide the next head of the bank.
In his last speech before Jim Chalmers takes his choice to cabinet, Lowe outlined several changes to the way interest rate rises are decided and explained, but left decisions about other structural reforms – such as establishing a separate board to set rates – until next year.
Treasurer Jim Chalmers and Reserve Bank of Australia governor Philip Lowe.
Interest rate decisions will only be made eight times a year, not 11, and the RBA governor will hold media conferences after each one in a shake-up of the central bank’s communications in the wake of the review, which was published in April.
Cabinet is due to meet this week as Prime Minister Anthony Albanese returns from his Europe trip to hear Treasurer Jim Chalmers’ decision.
“This is one of the biggest appointments the government will make,” Chalmers said on Wednesday morning.
“We will appoint someone who has the necessary experience and expertise, who can help bed down the recommendations of that really import Reserve Bank review.”
That review made 51 recommendations for an overhaul of the bank, from monetary policy processes and communication to its management and culture.
Lowe acknowledged that the bank needed to change the way it was managed and how it communicated its decisions.
“As times change, we too need to change,” he said in a speech at the Australian Conference of Economists in Brisbane.
“The world we face is increasingly complex, and it is right to re-examine how we make and communicate monetary policy decisions, and how the RBA is managed.”
Lowe also said there may not be a need for future interest rate rises after the bank lifted the official cash rate from 0.1 per cent to 4.1 per cent in just over a year.
“It remains to be determined whether monetary policy has more work to do,” he said on Wednesday.
Lowe said the board will examine new figures on inflation, the jobs market, household spending and the global economy to help inform its next decision in August.
Some data already shows the economy is slowly responding to the 12 rate rises.
ANZ analysis showed households have pulled back on spending as the sales season ended.
Total spending for the start of July is down 11.4 per cent compared to the same period last year, a faster decline than the 9.5 per cent fall over the whole of June compared to June 2022.
While savings buffers and an increase in real incomes were protecting some households from financial stress, the research found confidence among households with a mortgage was at an all-time low.
The central bank governor, whose term expires in September, has faced heavy criticism from the public and all sides of politics over his communication and handling of monetary policy after saying as late as November 2021 it was unlikely the bank would raise interest rates until 2024, before starting to raise rates in May 2022.
Chalmers said he respects Lowe and has been consulting widely about who should be governor of the RBA going forward.
Lowe said he would be happy to stay in the job, noting the treasurer has said he would make an announcement before the end of the month.
“If I was asked to continue in the role, I’d be honoured to do that,” he said. “If I’m not asked to continue in the role, I will do my best to support my successor.”
Lowe pointed out in his speech that the review found the central bank had dedicated, highly skilled staff, and that its inflation target of 2-3 per cent was fit for purpose.
The Reserve Bank has agreed to adopt 10 changes, including lengthening board meetings and allowing board members to attend internal staff meetings.
Lowe said the new post-meeting media conference will provide a “timely opportunity” to answer questions and explain the board’s decision.
“This is a significant package of reform that will contribute to better decision-making and communication,” he said.
But the work on other major changes, such as publishing how the board voted on rate decisions, has been delayed until the second bank board is up and running, which requires legislative change. Lowe said further recommendations were still being worked through.
Acting shadow treasurer Jane Hume welcomed the RBA governor’s plans to implement the review changes but said the Coalition would scrutinise the government’s handling of recommendations, including how it selects the next governor.
“As Angus Taylor has said, Australia must have an independent, credible and capable Reserve Bank,” she said.
“With regards to the appointment of the RBA governor, we want the government to follow the process laid out in the RBA review.
“It’s important whoever is doing the job has the right qualifications, experience and knowledge, and that they are independent from government.”
Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter here.