Treasurer Jim Chalmers is set to release the highly anticipated review into the Reserve Bank of Australia (RBA) on Thursday and to announce that the government has given in-principle support to all of its recommended changes.
The review of the RBA was launched in July and was tasked to look at some of the core objectives of the bank, how the bank makes decisions on interest rates, what information it tells the public, as well as who sits on its board.
Its final report comes after a difficult year for the RBA, which has seen the bank raise interest rates 10 times in a row, despite comments from RBA governor Philip Lowe, during the height of the pandemic, that rates were unlikely to rise "until 2024, at the earliest."
Mr Chalmers will release the review on Thursday morning, along with the government's initial response to its recommendations, and announce the appointment of two new board members.
Outgoing board members Wendy Craik and Mark Barnaba have not sought to be reappointed. They were both appointed by the former Coalition government.
It is expected the Albanese government will support all of the report's 51 recommendations in principle, although some of the changes will fall to the RBA to implement and some will require legislative changes.
The review will recommend the establishment of a separate Monetary Policy Board and a Governance Board, to try to make decision-making and governance arrangements more effective.
Some of its recommendations will also require work from the Council of Financial Regulators, or the agreement of a new Statement on the Conduct of Monetary Policy between the government and the RBA board.
Mr Chalmers is expected to reiterate the government's belief in the importance of central bank independence and Labor's support for Australia's inflation-targeting framework.
The RBA has been officially "targeting" inflation since 1993, when it adopted a flexible inflation target of 2-3 per cent.
The inflation-targeting era has coincided with 29 years of uninterrupted economic growth, in the years leading up to the COVID-19 recession, and many economists say it has served the country well.
"The review is all about ensuring Australia’s central bank and monetary policy arrangements are as strong and effective as they can be into the future," Mr Chalmers has said.
"I thank the RBA review panel for this significant piece of work and look forward to working across the parliament and with the RBA to implement the recommendations."
Shadow Treasurer Angus Taylor said the opposition welcomed the review and that its plan and goal was to be "as bipartisan as possible".
He also flagged the Coalition would consider the recommendations, including the plan to create the two new boards.
"It is common across much of the world and we're very open to it," he said.
"We'll go through our own processes and consider the details.
"We're working through [the recommendations], but I have to say that the direction of the review is very positive it's absolutely crucial to keep a central bank focused on its task and that task has to be very clearly outlined."
Mr Taylor, who received the review earlier this week and was briefed by Treasury about the recommendations, said whatever changes were made it was important to have people with "deep expertise" in the RBA.
"There have been real mistakes made by the Reserve Bank in recent times and they're laid out clearly in the review and people have paid a high price for those mistakes," he said.
The shadow treasurer would not comment on whether he believed Mr Lowe should remain in the top job, instead saying it was a decision for the government to make.
First changes RBA to face in decades
There have been no substantial changes to the way the RBA operates since 1998, when the Australian Prudential Regulation Authority (APRA) was established.
That reform, in the late 1990s, saw the RBA retaining responsibility for monetary policy and the maintenance of financial system stability, while the newly formed APRA took over responsibility for the prudential regulation of banks, superannuation funds and insurance companies.
Australia's economy has evolved a lot since then and, in recent years, some economists have been increasingly calling for the RBA to face an external review to see if its practices need updating.
A constant theme of debate has been the composition of the RBA board — which has responsibility for setting interest rates — particularly regarding the question of why it has business executives on the board, rather than monetary policy experts.
There have also been growing questions about the RBA's style of communicating with the public, and about the level of transparency around its monetary policy decisions and how board members vote each month.
And there have been questions about the degree to which monetary policy decisions have been backed by rigorous analysis, and how much debate and internal dissent is encouraged in RBA's board meetings.
This week, the government's new Economic Inclusion Advisory Committee even released a report recommending the government should commit to "full employment", saying full employment should be given increased weight in the design of macroeconomic policymaking — both monetary and fiscal — which would require more changes from the RBA.
