Treasurer Josh Frydenberg is open to an independent review of the Reserve Bank of Australia, following calls from the OECD for a probe into why the bank has consistently failed to meet its economic targets.
Such a review would include looking at the key lessons from the COVID-19 crisis, implications for interest rates being stuck at historic lows of 0.1 per cent, the bank’s inflation target, and its board structure and transparency.
The Australian Financial Review understands Mr Frydenberg is seriously considering a review, but any such move would not be announced until after the federal election, due later this year or early the next year.
“That is a real issue, and it’s something I will give consideration to in terms of looking at the RBA, looking at the montery policy setting, and learning from the experience of this pandemic,” he told Sky News on Wednesday.
“We are at a time of historically low interest rates; the cash rate at just 10 basis points. I think the RBA has performed very well through this crisis. Their policy response has been in sync and co-ordinated with the government’s fiscal response.
“I think the RBA and the government have worked very well together. But there is always a need to address the settings and to look at what lessons can be learned, especially after this once-in-a-lifetime pandemic.”
In its latest review of the Australian economy released on Wednesday, the Organisation for Economic Co-operation and Development said the RBA’s “overly tight” monetary policy – before slashing rates during the pandemic – had contributed to undershooting its 2 per cent to 3 per cent inflation target.
“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,” the OECD said.