Lowe Warns Against Large Wage Gains, Proposed Rate-Setting A Concern

The AFR reported that the RBA warned the government in a recent meeting not to allow large wage increases ahead of June’s announcement of the size of the minimum wage rise. Apparently Governor Lowe said that increases above 2%-3% plus any productivity growth would be inflationary. A 7% increase has been proposed and is currently being looked at by the Fair Work Commission. The government has criticised the leak from the meeting, as the contents had been intended to remain confidential.

• The RBA is on the front page of today’s Australian, as it reports that economists are concerned that the recommendations from the RBA review could result in the central bank losing control of rate setting.
• They argue that because the Board will continue to have more external than internal members but will have a formal vote, which will be published in the minutes (without attribution), then RBA staffers could be outvoted. CBA’s chief economist Aird notes that this would be different from other central banks that have a formal vote, as the majority of committee members are internal. He said “the new proposed structure of the board is different from what is generally considered best practice”.
• Treasury has said it agrees “in-principle with all the review’s recommendations” but is working with parties concerned on how they should be implemented.
• Westpac’s chief economist Evans believes that the proposed system implies that external members need to challenge internal RBA thinking as they are being appointed for their monetary policy expertise. He said “the risk of a dysfunctional ­decision process where members do not have the insights afforded to bank representatives looms large.”
• NAB’s Oster is fine with the proposed changes but clearly stated that the external members need to be chosen carefully from both academia and the financial markets.
  - AFR, Bloomberg, The Australian