Michael Stutchbury has a great exclusive in The Oz today quoting former RBA Board member, Warwick McKibbin, about the need for serious reform on the RBA Board. It echoes everything I have been saying here for some time: ie, that the RBA runs the risk of being hampered by the conflicted business executives that have majority control of its Board, and which have a vested interested in keeping rates low. While the RBA probably hates me giving them a hard time about these issues, they should also recognise that this advocacy gets traction and will ultimately be to their benefit:
"OUTGOING Reserve Bank board member Warwick McKibbin has called for an end to the majority of business leaders on the central bank board because they might not be tough enough on inflation...
Professor McKibbin suggested he was not reappointed because of his criticism of Labor's economic policies, particularly its budget stimulus spending...
"What if you need to raise rates at some point and it is going to cause a few problems for certain sectors of the economy and the business community thinks it is going to be a problem?"
Professor McKibbin says the board's structure should be rebalanced to three Reserve Bank staff, three academic economists or external experts and three business people.
"We should be worried about inflation," he told The Australian. "The central bank has been able to put a lid on inflation breaking out because it has been permitted to stand up and say this is how the world works and this is how we are going to respond."
Professor McKibbin favours excluding the Treasury secretary, whose board membership is often justified as helping co-ordinate budget policy and monetary policy.
"What if you have got a very political Treasury secretary who is concerned about the government of the day, which could be against good policy?" Professor McKibbin asked...
The Reserve Bank's May board meeting agreed that "higher interest rates were likely to be required at some point" in order to keep inflation within its target.
Shortly after, Mr Corbett played down the issue.
"We have got very moderate inflation," he said in an interview. The Fairfax Media chairman said Australia's main problem was its "bipolar" economy."
