It took a big mistake from a really smart guy to make the Albanese Government do what should have happened decades ago, so Dr Phil Lowe’s mistaken ‘no interest rate change until 2024’ message at least has done some good. By the way, his message in 2020 did good then too, with the borrowing that followed, helping us rebound out of the economic collapse of the Coronavirus lockdowns. 

Dr Phil’s big mistake was not backing away from this call in 2021, when the economy was clearly bouncing back. And the fact that his board didn’t make him do so shows that something needed to be done with the whole interest rate setting process and the associated board making those decisions. 

The chart below (which, ironically, came from the RBA) showed how strongly the economy was growing in late 2020 and then across 2021, when the board should have made Dr Phil go public to back down on that 2024 call. 

This was a group failure and a failure of the RBA’s board process, which is why I like what’s being proposed. So, what are the key recommendations? And what will they mean?  

Here’s a quick list of the key changes and their implications: 

1. One board, dominated by economic experts, will set interest rates. That’s good but it still needs a few people from the real world.
2. Another board will act like a company board for all the other functions of the Reserve Bank.
3. The inflation target of 2-3% will remain.
4. Beating inflation and trying to maximise employment remain as the Reserve Bank’s two key goals.
5. There will be regular press conferences after a rates decision, like in the US, which is a good thing. I’ll look at this in more detail later.
6. The new board will comprise the RBA Governor, the Deputy Governor and the Treasury secretary, plus six other voting members.
7. Board members’ votes will be published. Once a year they will get to go public with their views, which will make headlines and put a lot more pressure on Dr Phil or whoever replaces him after September.
8. One board member will come from the ACTU. The AFR says it will be Iain Ross, who was president of the Fair Work Commission. Ross is bound to disagree with the Governor and the board at times if we go through another 10 rate rises in less than a year.
9. There’ll be eight rather than the current 11 meetings a year and the new system is set to be in place by July next year.
10. And there will be five-year reviews of the RBA, which makes sense.

I like many aspects of these changes but it’s the press conference I like the most. Facing the press after a decision will mean the Governor and the board will face a grilling, like what the US Federal Reserve’s chair Jerome Powell faces after a rate rise or cut. 

Sometimes financial markets go up or down after a decision but after the conference, when more clarity or uncertainty emerges, the markets can go in the opposite direction. An RBA Governor will have to be a good communicator. 

When I hosted my Sky Business TV program and Glenn Stevens and his board were keeping interest rates too high and I (along with others) was bagging him, it was impossible to get an interview with him. The pressure saw him grant David Koch a one-on-one, but the fact he selected just one person to question him showed how the public message from the RBA was often in the hands of one man, who had a lot of power. 

By the way, Glenn eventually had to wield to criticism and the economy and cut interest rates ‘big time’. If he’d faced the press more often, he would’ve moved much earlier and the economy and the consumers, wage earners, businesses and the unemployed would’ve suffered less. 

This power that RBA bosses wield wasn’t lost on Treasurer Jim Chalmers. “One of the themes that emerges from the review is how we make sure that the views of the governor around the decision-making table can be tested,” Dr Chalmers said. 

Not surprisingly, Dr Phil didn’t agree with Dr Jim. 

“So, the idea that the board members sit there meekly, and accept the recommendation that I put to them is very far from the reality that I’ve lived as the governor,” he said. 

To me, that either implies that the board agreed with his 2024 call and never challenged him about backing away from it, or else they did complain about the soundness of the decision and Dr Lowe used his ‘imperial’ power to reject their suggestions. 

As comedian Mel Brooks in his film History of the World declared: “It’s good to be king.” However, it’s not always great for the subjects of that king!