MNI: RBA Reviews Set To Kick Off On Policy, Targets

The Reserve Bank of Australia is expected to announce a review of its yield targeting program on Tuesday as it moves to understand the effectiveness of monetary policy decisions in response to the pandemic.

Details of the review are scheduled to be released as one of several reviews RBA Governor Philip Lowe said would be undertaken and published in coming months.

Under the yield target, the RBA bought three year Australian government bonds on the secondary market, pegging the yield to the record low 0.1% official cash rate. The target was abandoned in November 2021 after a market revolt sent yields on the targeted April 2024 bond to 0.8%, (See: MNI STATE OF PLAY: RBA Turns Hawk In Biggest Hike Since 2000).

The yield target review announcement comes after reports that Australia’s new Labor Government is set to announce an independent review of the RBA, contrary to the RBA’s preference for an internal review by the RBA and officers from the Australian Treasury, (See: MNI BRIEF: New Treasurer Chalmers Meets RBA's Lowe On Review).

New Australian Treasurer Jim Chalmers is set to ask the review to look at the composition of the RBA Board, the 2% to 3% inflation target and the conduct of monetary policy. The review will be asked to report by June 2023, just before current Governor Philip Lowe’s seven year term expires in September.

LOWE COMMENTS

Lowe has made several recent comments on the review and the issues it will examine.

In May, at a national journalism awards event, Lowe said he favoured the Canadian system of reviewing the central bank every five years.

“They have a systematic review that is agreed by the government and the central bank once every five years. And it is depoliticised, it is kind of technical, and the government, through the Canadian Treasury, and the central bank work on a recommitment,” he said.

“And so, I think, if we could over time move to something like that, it would help depoliticise this, and make sure that there is a structured review process that is periodic, not too frequently, but periodic. So, these issues could be on the public record.”

Lowe also said he believed the RBA board “is serving the country very well” and extolled the virtues of having outside and independent appointees.

“We have more diversity in our Board, the people who actually make the decisions, than other central banks, basically because they work in the central bank all the time, most of them, they are economists who will have some training in that way,” he said.

“Whereas the people who make decisions about interest rates in Australia come from very diverse perspectives. So, I think there is a lot of benefit in that.”