The author has been described by News Ltd as an "iconoclast", "Svengali", a pollie's "economist muse", and "pungently accurate". Fairfax says he is a "Renaissance man" and "one of Australia’s most respected analysts." Stephen Koukoulas concludes that he is "85% right", and "would make a great Opposition leader." Terry McCrann claims the author thinks "‘nuance’ is a trendy village in the south of France", but can be "scintillating" when he thinks "clearly". The ACTU reckons he’s "an enigma wrapped in a Bloomberg terminal, wrapped in some apparently well-honed abs."

Friday, September 9, 2011

Bloomberg: Australia Sets Rates Secretly as RBA Eschews Transparent Policy

This is a very damaging article published on the RBA by Bloomberg today, which appears to be deliberately targeted at an international audience (nb: I have only excerpted parts of a longer feature). I actually don't agree with a lot in it: Glenn Stevens has done a terrific job improving the RBA's transparency (with the help of the excellent Vanessa Crowe, who is a former Bank of England economist), and I do not believe that RBA Board Members should (a) have their votes disclosed or (b) be permitted to speak out on monetary policy. These same confidentiality principles apply to all listed corporate boards, and I don't see why the RBA should deviate from best practice. The disclosure of votes on the Bank of England's MPC has created a communications nightmare.

Nor do I agree with the criticisms of Glenn Stevens's pay, as I explained in detail here. In fact, I think I was the first person to publicly defend Stevens's remuneration in the face of aggressive and unfounded attacks from media commentators like Ross Gittins and David Bassanese. If anything Stevens is materially underpaid (refer to my linked analysis on this), although depending on the outcome of the Q3 and Q4 inflation prints one might reasonably argue that his job could be on the line. In particular, if the RBA was willing to replace its former Head of the Economic Group with Phil Lowe principally on the basis of the RBA's poor inflation forecasting performance prior to the GFC (this is a widely-accepted interpretation), at some stage Stevens needs to take personal responsibility in the event the same mistakes occur post-crisis. Stevens, Lowe and Battellino have all acknowledged that they were 'surprised' by the strength of core inflation in Q1 and Q2. We will all be keeping our fingers crossed for a low print in Q3!

On the other hand, I do, of course, agree with the criticisms apropos the conflicts that currently exist on the RBA Board, which I have written about extensively...I similarly concur with the questions raised about the absence of female executives at the top of the RBA's management pyramid. Again, I was the first person to publicly write about this in my articles for Business Spectator in 2010 (see here and, in particular, some interesting quotes on this blog here). Some time after I raised the issue, Michelle Bullock made history by being appointed the RBA's first-ever female Assistant Governor. She will hate me saying this, but Luci Ellis must be close to being next in line.

Needless to say, many still consider me to be an RBA 'critic' when, in practice, the Bank has no stronger, nor dispassionate, supporter of it on the issues that matter: ie, its independence and efficacy. I have said this before, and I will say it again: the Bank has a world-class staff and is our single most impressive economic institution.

"Australia Sets Rates Secretly as RBA Eschews Transparent Policy
2011-09-08 14:01:00.0 GMT
By Michael Heath

Sept. 9 (Bloomberg) -- Reserve Bank of Australia Governor Glenn Stevens, with a pay level set more than four times that of Ben S. Bernanke at the Federal Reserve, oversees a bank that’s less transparent than Poland’s in setting policy.

Stevens, who this week kept the RBA’s benchmark interest rate at a developed-world high of 4.75 percent, makes the call on adjusting borrowing costs without a publicly revealed vote of the board -- an anomaly relative to the standard followed by peers in nations from the U.S. to Japan to Poland. A lack of accountability may undermine confidence in the RBA when Australia’s economy turns, University of Cambridge economist Petra Geraats said. “Australia would be well-advised to strengthen its monetary-policy making framework to be better equipped to effectively respond when more challenging economic conditions arrive,” said Geraats, who has published articles on transparency and delivered presentations on the subject to central banks from Africa to Asia...

Public comment on monetary policy by board members is also lacking, with Stevens allowing only himself and his deputy to speak on the issue...By contrast, Fed policy makers have publicly differed this year on whether the U.S. central bank ought to consider additional asset purchases to help pull down an unemployment rate in excess of 9 percent. Germany’s Bundesbank has opposed the European Central Bank’s purchases of bonds of euro-region nations engulfed by the sovereign-debt crisis.

“I do find it awkward that the bank has to speak with one voice,” said Bob Gregory, an economics professor at Australian National University and an RBA board member from 1985 to 1995. “The monetary policy debate is more subdued than it otherwise would be if you had board members out there talking about the decisions.”

One impediment to a more effective board is that non-career RBA members don’t give up their outside jobs, another anomaly when compared with peers. A majority of its members are drawn from business. Current members include an executive vice president of BG Group Plc, a U.K.-based energy company, and the chairman of Fairfax Media Ltd., Australia’s second-largest newspaper publisher.

“There’s always a potential conflict of interest” from the arrangement, said Warwick McKibbin, a member of the Reserve Bank’s board until July 30...McKibbin said a further difference with other central banks is the presence of a Treasury official on the board, giving the government a voice in policymaking. “If you had an expert board, you could actually lay out everybody’s issues on the table,” McKibbin, a professor at Australian National University, said from Canberra. “If you start with an expert board you don’t have this dilemma” of revealing board members’ views that may put them in conflict with their own constituents, he said.

While encouraging others to refrain from speaking, Stevens also limits his own availability for comment on monetary policy. He doesn’t hold news conferences like his counterparts at central banks including those of the euro region, U.S., Japan, U.K., South Korea, Mexico, Chile, Peru, Colombia and Canada. The RBA declined a request from Bloomberg News to speak with Stevens on transparency...

The RBA’s board is also out of step with much of the country when it comes to women, who run the federal government, largest city and second-biggest bank...With both of the current female members being from outside the RBA, they fall into Stevens’s category of having to refrain from public comment on monetary policy. No woman has been either governor or deputy governor.

Concentrating the role of communicating monetary policy in one or two officials is “probably not the best arrangement,” said Allan Meltzer, a historian of the Fed and a professor at Carnegie Mellon University in Pittsburgh. “Having an open public debate keeps people aware of the differences in views and what the issues are -- and that’s a good thing,” Meltzer said."