Christmas has come early for the bank’s shareholders with the decision to slightly increase the 2024 dividend – despite a single-digit decline in the net profit and cash earnings.
Beating the market benchmark is never easy, with 72 per cent of Australian actively managed global equity general funds trailing the S&P World Index in the six months to June 30, 2024. Domestic equity funds performed slightly better, albeit against a significantly lower bar set by the S&P/ASX 200 Index.
RBA should split governance, rate-setting functions and meet less: Review
The Reserve Bank of Australia is set for a major overhaul that would see its power to set interest rates moved to a new board of monetary experts and its meetings cut to eight per year, following an independent review that criticised the bank’s handling of the pandemic.
The review by a panel of monetary policy experts – the first external review of the bank since the 1990s – recommended the establishment of a new RBA board responsible for monetary policy, leaving the current board to focus solely on the bank’s governance. That change would bring the RBA more in line with other central banks, most of which have separate governance and monetary policy functions.
“The Reserve Bank board’s composition and decision-making processes have not sufficiently enabled it to shape policy decisions, strategy, and the RBA’s underlying analysis and judgments,” the review stated. “The government should form a monetary policy board with greater economic expertise and participation in decision making while maintaining diverse perspectives and knowledge.”
Treasurer Jim Chalmers announced the wide-ranging review of the RBA last July following criticism over the bank’s policy settings through the pandemic, saying it would encompass the bank’s “objectives, mandate, the interaction between monetary, fiscal and macroprudential policy, its governance, culture, operations and more.” The final review makes 51 recommendations.
The panel – made up of Gordon de Brouwer, Renee Fry-McKibbin and Carolyn Wilkins -recommended the board move to eight monetary policy meetings per year, down from 11 currently, to allow more time for consideration of issues and impacts and for engagement with RBA staff. Other recommendations include the appointment of a chief operating officer and enhancement of the bank’s communications function.
While it highlighted flexible inflation targeting as a successful tool in the RBA’s arsenal, the panel said the challenging environment in recent years, including the low-inflation period from 2016 to 2019, policy responses to the COVID-19 pandemic and now the battle against rising inflation, has revealed areas that need improvement.
In a press conference Thursday following Chalmers’ of the review, RBA Governor Philip Lowe said he welcomed the panel’s recommendations and insisted he does not feel “personally slighted” by the review.
“The recommendations in the review will help us deal with this more complex world, and they will strengthen the monetary policy process and the governance of the RBA,” Lowe said. “As times change, we need to change too, and the review will help us do this as the bank and its staff strive to promote the collective economic welfare of the Australian people.
“I’ve thought for some time that there was a strong case to strengthen the governance of the RBA as an institution,” he added. “I think it’s true to say that from a number of perspectives, the current oversight arrangements… for managing the bank fall short of contemporary standards. The proposed changes would help address this, and they would help me as governor manage the bank and the many complex and important functions we undertake.”
While he largely approved of the panel’s recommendations, Lowe pushed back at its characterisation of the current RBA board as lacking the expertise needed to both set monetary policy and challenge him in decision-making, saying “the review panel did not sit in the boardroom, and the description of how the board process works… doesn’t particularly resonate with me”.
“What I see are nine people who are deeply engaged in the questions, who bring a great deal of expertise to the issues we’re dealing with. They’re probing, they challenge me, and sometimes I speak last in the meetings. So the idea that the board members sit there meekly and accept the recommendation that I put to them is very far from the reality that I have lived as the governor.”
The RBA board will consider the panel’s recommendations over upcoming meetings and “develop a holistic response”, Lowe said, with plans to publish a detailed response later in the year.
“It’s not often the central bank gets reviewed, so it’s important that the job is done well and done thoughtfully and that the process is constructive,” he said. “This is exactly what’s happened here – it’s been a good process.”
