Talking point: Lowe asserts that the RBA is now way more transparent than at any point in its history. — Bloomberg
CHANGE is coming to an authority long revered – and cosseted – thanks to a pre-Covid record of economic management that got rave reviews.
The farther from Sydney the person bestowing the praise, the more effusive it was.
The world is now rushing in on the Reserve Bank of Australia (RBA) with potentially great significance, and not in a way policymakers may welcome.
A once-in-a-generation independent review of the central bank was handed to the government last week.
Treasurer Jim Chalmers said the findings will be released this month.
He must then decide what to do with them. Leaks suggest the panel recommends interest rates be set by people with greater expertise in economics and the RBA governor hold press conferences, among others.
These are low-hanging fruit, and things that are standard practice internationally.
Even these seemingly modest shifts carry some major implications.
Incredible as it may sound, there has historically been a dearth of appointees with monetary gravitas on the RBA board.
Many have tended to be chief executives, college presidents, labor heavyweights.
They get to keep their day jobs. Rarely, if at all, do they speak about their role in some of the most important decisions in the country’s economic and social life. There aren’t records of how they vote, if they even do. Australians should have demanded more of personnel and process ages ago.
The governor and deputy governor are the faces, and voices, of policy. It’s become a widespread critique of the board that a majority lack the chops to stand up to the RBA brass.
Not that a panel resembling the Federal Open Market Committee (FOMC) or the conclaves at the Bank of England and Bank of Japan are devoid of error. But we tend to know where people stand because their votes are recorded and we have a grasp of their views, be they dovish or hawkish.
Investors are able to get an insight into where the points of tension and dissent lie.
Another no-brainer likely to be put forward are regular press conferences to explain rate decisions. It isn’t about comparisons with the Federal Reserve (Fed), a relative late comer to the on-camera briefing game.
Such a step would be little more than bringing the RBA into line with pretty much any central bank anywhere, including in the eurozone, Indonesia, South Korea, Japan, India, South Africa. The list goes on. The absence in Australia is ridiculous.
RBA governor Philip Lowe says a lot of talk doesn’t necessarily bring clarity.
That’s true, but it sure isn’t going to hurt. It’s also entirely accurate, as Lowe asserts, that the RBA is now way more transparent than at any point in its history.
Unfortunately, that’s a low bar. Lowe does make a practice of giving speeches soon after board meetings where he takes questions, but this isn’t an institutionalised practice.
He has an address, the day after a meeting at which the bank may pause its rate hikes.
It’s important to know who to listen to when central bankers are out and about.
During hectic weeks of Fed speak, for instance, commentaries get hung up on whether a person is an FOMC voter this year or not.
A decade in Washington taught me that status isn’t the be all and end all.
Listen to the leadership at prospective turning points, not the backbenchers. That’s an argument for the RBA chief to speak more, not less.
It will also be incumbent on any newly constituted group of rate setters to speak often.
Here’s hoping the scrutiny on any new breed will be sufficient for them to not hide.
Chalmers or Lowe would be mistaken to neuter them at the outset.
Depending on how bold the government wants to be in pursuing changes recommended by the review, legislation may be required.
This could be tricky. The ruling Australian Labour Party lacks a majority in the Senate.
The conservative opposition has said it’s open to a bipartisan approach on the bank.
Sounds encouraging, but it will depend on the fine print and the politics of the hour.
And what will the opposition and minor parties want to extract for their support?
The Greens have called for the scalp of Lowe, whose term ends in September.
Lowe has said he would like an extension, as his two immediate predecessors received.
Lightning rod
Lowe has become a lightning rod.
Like many central banks, the RBA has undertaken the most aggressive tightening campaign in decades.
Few monetary chiefs have had to wear the opprobrium dished out to Lowe, however.
Television crews stake out his home.
He is chided on the evening news and vilified on talk radio.
Given most Australian mortgages are tied directly to the RBA benchmark rate and fluctuate accordingly, some of this was inevitable.
Much of the vitriol zooms in on some unfortunate guidance Lowe gave that rates may not increase until 2024.
The remark was conditional, but nobody remembers that now.
Instead of hammering Lowe, Australians might ask themselves why it’s taken so long for a clamour to join the global mainstream.
Perhaps it’s been the absence of a crisis. The country skated through the Lehman Brothers Holdings Inc fiasco without a recession and, prior to the pandemic, hadn’t had a serious downturn since the early 1990s.
Speaking as an Australian who has worked abroad for almost three decades, I think the nation was drunk on its own propaganda, the idea that the country had cracked the code.
It basked in the China resource boom and enjoyed the era of low inflation and borrowing costs known around the world as the Great Moderation.
Wrenching reforms
It reaped the dividend of wrenching reforms undertaken in the 1980s. Appetite for change has wilted since.
Australians came to ask too little of their premier institutions, the RBA among them.
The level of public debate on policy right now is infantile.
How does hassling the governor as he takes out the trash from his home in suburban Sydney elevate the discussion?
Jay Powell has his own problems, but this isn’t among them.
Lowe wasn’t the only one to miss the spike in inflation.
The reviewers aren’t out to hang Lowe or put the RBA through a meat grinder.
They are establishment figures and include a former deputy governor of the Bank of Canada, a prominent academic and a former Treasury executive.
Even a modest recasting would be welcome. That everybody else is doing something isn’t often a glowing recommendation. This is a rare exception. — Bloomberg
Daniel Moss is a Bloomberg Opinion columnist covering Asian economies. The views expressed here are the writer’s own.
