There were some thoughtful remarks from the Deputy Chair of the House of Representatives’ Economics Committee in Parliament today on the governance of the RBA. The Deputy Chair was summarising the Economics Committee’s recent evaluation of the RBA’s performance and testimony. And Mr Briggs was once again refreshingly frank in his consideration of what are a complex set of issues.
In summary, Briggs noted the ‘worrying’ claims about leaks of the RBA’s monetary policy recommendations to the Board prior to the Board actually having the benefit of assessing those submissions. In his testimony to Parliament, the Governor emphatically denied such leaks take place, so I think we can be comforted that this governance issue has been well and truly put to bed. (Although Terry McCrann remains a forecasting genius.)
Briggs then goes on to argue that if the RBA is going to change the conduct of its monetary policy setting process, and, specifically, shift away from targeting purely inflation to explicitly seeking to influence asset prices in extreme circumstances, then the central bank needs to consult its ultimate masters, the Treasurer and the Parliament, since these changes to its mandate are clearly not countenanced by, or consistent with the spirit of, the 1959 Reserve Bank Act or the Statement on the Conduct of Monetary Policy executed between the Governor and the Treasurer (this Statement would ideally have been signed on behalf of the Board).
Finally, Briggs argues that given the Governor’s recent comments surrounding the vastly more complex monetary policy environment, and the Governor’s thoughtful arguments in favour of extending the monetary policy remit to assist in tackling coincident asset price and credit booms, there is a demonstrable need for more experts on the Board of the Bank. Of the six independent members on the Board today, only one, Warwick McKibbin, is a professional economist. Briggs is, in fact, echoing the same claims made by another former member of the Board, Professor Adrian Pagan, who persuasively put the case that the Board was in dire need of members with superior technical expertise if it was to have any hope of genuinely questioning the executive’s recommendations, which is, after all, its reason for being.
Overall, it is surprising to see a young politician step up to the plate in this way, and seek to address what are a sophisticated suite of issues. For those central banking nuts, the Hansard text enclosed below is well worth a read...
"Mr BRIGGS (10.07 am)—I thought we had a very high-quality discussion with the Reserve Bank governor. It is one of the main opportunities that the parliament has to interact with the Reserve Bank governor and ask about issues that are driving his thinking in relation to dealing with monetary policy…
I thought there was some other interesting discussion about the structural issues in and around the bank. We had a discussion with the governor about claims aired through the ABC Lateline Business program last year of pre-leaking of board decisions prior to the board meeting. I thought the governor was very strong in his dismissal of those accusations, and it was a good opportunity for the governor to clear that up. It was an important issue; interest rate movement is very market sensitive information and claims that that information was being pre-leaked to the market were obviously worrying. They were worrying for this place and obviously also for the governor, because he was very strong in his dismissal of those accusations.
We also had a very good discussion about the board structure. There are some who claim, and I have some sympathy for this claim, that we do need to consider this given, as the Reserve Bank governor himself has identified, that there is an increasingly difficult role for the central bank—a more complex role, interacting in global movements. There is some merit in reconsidering the structure of the Reserve Bank board. This is not because it has done a bad job over the years; certainly in recent times it has performed quite well.
Part of our role in this place, and an important role of this committee, is looking at the issues that will need to be addressed by the Reserve Bank and by the parliament in the future. It is an appropriate moment, given that the governor in his 50th anniversary speech highlighted the more difficult circumstances in which the bank is operating, to give some consideration to whether there need to be some more market-based professionals, market-based economists, on the board. The governor, while supporting the board, I thought took on board some of those questions and we had a reasonable discussion. I personally would like to see that sort of review or consideration take place, to see whether it is high time to change the structure of the board.
Against that there is the developing and important issue of the consideration the governor is giving to changing the way the bank operates in respect of leaning against the wind, where the bank sees a developing problem in an area like the housing market. We had a very good discussion on this. It is a contentious issue and I think it is a very big policy issue. I am very concerned to make sure that, if that decision is made, it is made in conjunction with the government of the day, with the parliament, and there needs to be a full and open debate about whether that is a good policy or not…I am concerned to ensure that the governor undertakes any changes to the way he operates in setting monetary policy in conjunction with the parliament and the Treasurer of the day. There should be a full and open debate about this issue, if in fact we decide to go down this path. It would be a massive change to the way the bank operates and it would have a very real-world effect on people’s house prices and the interest rates that they pay. It is a developing issue. Yes it is technical and it is pretty dry and it is not a matter that the Daily Telegraph will splash across its front page…
[S]o there is a real-world consequence which we face as members of parliament, and how the bank sets its rates and makes its decisions is a very important issue. They should not be decisions made purely by the bank. That is my point, and I think the member for Banks and I are probably in agreement on that. If the bank is going to change the way they make their decisions, then we should be part of that process. That is a developing issue.”
