Reserve Bank dual boards finally get green light

Labor and the Greens have reached a deal that will split RBA responsibilities between two boards. (Steven Markham/AAP PHOTOS)

Australia's central bank will soon have two boards under a deal struck between the federal government and the Greens.

The emergency power to overrule the Reserve Bank of Australia's interest rate decisions will be kept despite an independent probe recommending the federal treasurer's veto right be dumped.

In addition, the Greens said the RBA would maintain the ability to direct bank funds, as the minor party requested.

Despite opting to keep the override power - a concession already on the table from negotiations with the opposition - Labor has not agreed to pull the trigger and force the central bank to start cutting interest rates, as the Greens were calling for in earlier phases of talks.

The long-stalled reforms stem from an independent review of the central bank intended to strengthen and modernise the key economic institution.

A key recommendation was a dual board set-up, one for setting interest rates and another for governance.

Under the reforms, the RBA will have dual boards to set interest rates separately to governance. (Steven Markham/AAP PHOTOS)

Treasurer Jim Chalmers said the legislation passed on Thursday would deliver the biggest set of reforms undertaken at the Reserve Bank in more than three decades. 

"We're ensuring Australia's central bank remains world class with a monetary policy framework fit to meet our current and future economic challenges," he said in a statement.

"These changes are part of the Albanese government's broader efforts to reform, renew and refocus the nation's key economic institutions so that  they can help meet current and future challenges.

The federal treasurer will retain the right to overrule the RBA on interest rate decisions. (Dean Lewins/AAP PHOTOS)

Greens Treasury spokesman Nick McKim said the minor party was using its power in parliament to fight for renters and mortgage holders. 

"I'm relieved to see the treasurer agreed to retain the power to cut interest rates," he said.

Despite early hints of bipartisanship, the opposition chose not to support the legislation for fear the new interest rate setting board would be "stacked" with Labor appointees.

Shadow Treasurer Angus Taylor accused Labor of doing a "dirty deal" with the Greens.

"The Greens in their dissenting report on the legislation have called monetary policy "a perversity" and accused the Reserve Bank of practising "neo-feudalism."

"He would rather align himself with these views than guarantee the independence of the existing Reserve Bank board."