Treasurer Josh Frydenberg has indicated he that might consider taking up the Organisation for Economic Co‑operation and Development’s (OECD) call for an independent review of the Reserve Bank of Australia.
The RBA has missed its economic target since 2015 and hasn’t faced a review in 40 years.
Frydenberg was asked in an interview yesterday with Sky News’ Peter Stefanovic whether it was time for a review of the RBA.
“Look, that is a real issue and it’s something that I will give consideration to in terms of looking at the RBA,” he replied.
He said this could include looking at the monetary policy settings and learnings from the experience through the COVID-19 pandemic.
“We are at a time of historically low interest rates. The cash rate at just 10 basis points,” said Frydenberg.
“I think the RBA has performed very well through this crisis. Their policy response has been in sync and coordinated with the government’s fiscal response. They’ve been very active on‑buying in the secondary market as well as providing more liquidity to the system and a term funding facility for the banks.
“So, I think the RBA and the government work very effectively together, but there is always a need to address the settings and to look at what lessons can be learned particularly, after this once‑in‑a‑century pandemic.”
In its survey, the OECD says: “Now would seem like an appropriate time for a review of Australia’s monetary policy framework, given the institutional and structural changes that have occurred in the economy as a result of the pandemic and the unconventional policy instruments the RBA has begun to employ.”
It added: “Such a review should be broad in scope, potentially including a review of the central bank mandate, policy tools, methods of public communication, hiring processes and internal processes. It could also consider the alternative paths for rebuilding monetary policy space from the current position of policy rates at zero lower bound.”
The OECD anticipates that the economy will see solid growth of 4 per cent in 2021 and 3.3 per cent in 2022, following a drop of 2.5 per cent in 2020
It expects the economy to contract in the third quarter of 2021 then return to growth as higher vaccination rates enable an easing of restrictions.
“The recovery may be more gradual than in past episodes, as it will occur in an environment of higher virus transmission. An acceleration in vaccine rollout could enable a faster reopening and a rapid pick-up of household consumption, given the stock of excess savings.
“On the other hand, were significant COVID-19 outbreaks to occur in other states, then the economic shock could deepen. Any ratcheting up of tensions with China could further weaken trade activity.”
Short-term fiscal policy should remain responsive to developments such as the evolution of the pandemic, the OECD survey says.
“Once the recovery is well under way, Australia should continue to reduce regulatory, administrative and financial barriers for high-potential young firms. Rethinking institutional frameworks related to fiscal and monetary policy and ensuring an adequate social safety net would leave the economy better prepared to face future shocks.”