Australia’s central bank has begun making major adjustments to its policy-making process, adding more uncertainty about when it will ease interest rates for affected borrowers.
Parliament late Thursday passed long-awaited reforms to the Reserve Bank of Australia after the ruling Labor government won support from Green Party lawmakers, overcoming objections from the main Liberal National opposition.
The changes, recommended by an independent review in 2023, include dividing the current RBA board into two groups, one dedicated to monetary policy and the other focused on the central bank’s governance and operations.
Analysts assume that the new Monetary Policy Committee will include some new members, which may change expectations of interest rate cuts.
The current board has kept interest rates at 4.35% for a full year and has indicated there is little chance of easing in the near term, even as many of its counterparts in the developed world cut interest rates.
“While our base case remains for the RBA to start cutting interest rates in February, the changes increase uncertainty around the function of the RBA’s future response given the board members,” said Andrew Book, an economist at Goldman Sachs. potential newcomers.
The MPC will retain the current structure of six external members appointed by the Treasurer and three “ex-officio” members consisting of the RBA Governor, Deputy Governor and Treasury Secretary.
Governor Michelle Bullock has indicated that some current board members may move to the Monetary Policy Committee and others to the Governance Committee.
The reforms recommended that the new MPC include members with expertise in monetary policy, macroeconomics, and the labor market, among other areas. They will formally vote at board meetings, the overall vote will be published, and members may choose to make public speeches.
Speaking at a press conference on Friday, Treasury Secretary Jim Chalmers said the new format would be introduced sometime after the RBA’s board meeting on February 18, and possibly by March 1.
Chalmers said he would consult the opposition on his choices for the new council, saying the candidates would be “first class”.
The opposition had blocked the reforms in part by arguing that Chalmers could choose appointees friendly to the government.
The RBA has already adopted some recommendations from the review, including holding fewer but longer policy meetings and holding a press conference after each decision.
The central bank will maintain its dual mandate of maintaining price stability and full employment and aims to keep inflation in a target range of 2% to 3% over time, with a focus on the midpoint of 2.5%.
Consumer price inflation slowed sharply to 2.8% in the September quarter but mainly due to temporary government discounts on electricity bills.
However, core inflation has remained stubbornly high at 3.5%, and Bullock has repeatedly stated that the Governing Council will not ease policy until it is confident that the measure will return to the midpoint of its 2%-3% target range.
