RBA Reforms Pass: Interest Rate and Corporate Governance Boards Split

A man walks past the Reserve Bank of Australia in the central business district of Sydney on June 7, 2022. - Australia's central bank raised interest rates by a higher-than-expected half percentage point on June 7 and warned of more increases, trying to rein in "significantly" increased inflation. (Photo by Muhammad FAROOQ / AFP) Photo by MUHAMMAD FAROOQ/AFP via Getty Images

Australia’s central bank will soon operate with two distinct boards, following an agreement between the federal government and the Greens that led to the passing of a new bill.

Treasury Laws Amendment (Reserve Bank Reforms) Bill 2023 seeks to create two RBA boards instead of one: a board to make interest rate decisions, and the other to take care of corporate governance.

Those on the interest rate board will have an expanded role, including regular speeches to discuss decisions.

Emergency Override Power Retained Despite Debate

One of the more contentious elements of the reform package is the retention of the emergency power allowing the federal government to override the RBA’s interest rate decisions.

Despite an independent review of the central bank that recommended the veto power be removed, the government has opted to keep this provision.

This decision is seen as a significant concession to the Greens, who have long advocated for greater control over the RBA’s actions, especially in relation to interest rates.

Greens Treasury spokesman Nick McKim expressed satisfaction with the outcome, highlighting that the party was able to use its influence to secure provisions that would benefit renters and mortgage holders.

However, while the Greens secured a victory with the veto power, the Albanese government has not gone as far as the Greens had hoped in terms of forcing immediate interest rate cuts.

Earlier discussions had seen the Greens pushing for a more aggressive stance on rate reductions, but Labor has resisted these demands, fearing potential negative consequences for the broader economy.

Opposition Accuses Government of ‘Stacking’ the RBA Board

Despite early suggestions of bipartisanship, the opposition ultimately refused to support the legislation, citing concerns over the potential politicisation of the RBA board.

Shadow Treasurer Angus Taylor accused Labor of a “dirty deal” with the Greens, claiming that the proposed reforms could lead to the RBA board being filled with Labor appointees, undermining the institution’s independence.

Taylor’s criticism centred on the Greens’ dissenting views on the RBA’s current practices, with the minor party describing monetary policy as a “perversity” and accusing the RBA of operating in a “neo-feudal” manner.

Despite these concerns, Treasurer Chalmers has attempted to address opposition demands by accommodating several key amendments.

These included proposals to make the RBA governor the chair of the governance board, offer greater flexibility in term limits, and ensure senior RBA executives continue to oversee operations.

Liberal Senator Simon Birmingham also voiced concerns, suggesting that the dual-board model might be more bureaucratic than necessary. He argued that the creation of two separate boards could complicate the RBA’s functioning, raising doubts about the effectiveness of the reform.

AAP has contributed to this article.