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Is the RBA selling out its independence?

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17.07.2019

When I first proposed an independent Reserve Bank in an academic paper in 1980 and, subsequently, inflation targeting, I had expected somewhat more than has been achieved.

In "100 per cent agreement" ... RBA governor Philip Lowe with Treasurer Josh Frydenberg after their two-hour meeting on the state of the economy.Credit:David Geraghty

As to independence, I argued that it would be important that the RBA be independent in two senses, from the elected government of the day, and within government, specifically from the Treasury. I envisaged that RBA board members would be appointed with a diversity of skills, backgrounds and experience – including from business, unions, the economics profession, and the broader community, but excluding the secretary of the Treasury.

I saw the role of the board to essentially meet statutory governance obligations, and to contribute to what I hoped would be frank, independent, and contestable advice to government on the state and prospects of our economy, and the required policy responses, as well as ensuring that the implementation of monetary policy would be the sole outcome of the independent judgment of the RBA board and management.

However, as it has operated, the non-official board members are at a disadvantage. Although they come with their industry and broader perspectives and experience, the officials – the governor and the secretary of Treasury - are able to control the agenda, the background data, and essentially direct board deliberations and outcomes.

As to inflation targeting, I never imagined that the target would remain fixed for all time, rather than be adjusted from time to time to reflect market........

© The Age