The battle between Treasurer Jim Chalmers and RBA boss Michele Bullock is heating up, with three former governors of the central bank running to her defence.

The trio is opposed to the Treasurer’s plan to abandon the current RBA board structure or change its members who set interest rates.

This is a big deal reform for the Albanese Government, which is opposed by Opposition Treasury spokesman Angus Taylor, who pulled his support this week. Now Ian Macfarlane, Bernie Fraser and Philip Lowe either want the current structure of the central bank maintained or existing board members to continue setting interest rates.

The Treasurer wants a board that sets interest rates and another board that will be a governance body.

Taylor is worried that a new interest rate-setting board could be stacked “with Labor-aligned figures after Dr Chalmers accused the central bank of ‘smashing the economy’.” (news.com.au)

Ian Macfarlane summed up his concerns this way: “The significant change would be the centre of gravity going from the governor and staff of the Reserve Bank operating with an advisory board, to a decision-making board where the majority of the votes rest with the six part-timers. Australia would have the only central bank in the world with a decision-making structure like that. This is placing a lot of faith in the part-timers, but we don't know who they are going to be”.
Bernie Fraser, who was governor when home loan interest rates went to 17% in the late 1980s, argues he’d be afraid of monetary policy experts purely looking at interest rates. He said, “the best board members during his time as governor from 1989 to 1996 were those able to take a broader view of the economic outlook, including former union leader Bill Kelty”.

Fraser says that even without the new committee, the current RBA board was already excessively focused on inflation. He thinks the board should lower the 4.35% cash rate, arguing that “recessionary risks” were looming that would be devastating for the jobs market.

The interesting aspect of this trio’s criticism is that both Bernie and Dr Phil didn’t cover themselves with glory when they ran the RBA. Ian Macfarlane didn’t make major mistakes, but I can recall often calling on him and his board to move quicker on rates, and in most cases I was proved right. (Nowadays, when we meet, he doesn’t seem keen to ask how I’m going!

I like the idea of a separate body to set rates made up of experts on the Australian economy and business leaders who know what’s happening in the real world. A union leader should be there for balance, as the RBA Governor should arm everyone with the best research on not just what’s happening in the economy but what’s likely to happen.

I can’t forget that this board rubber stamped Dr Phil Lowe’s ‘rates won’t change until 2024’ call and these three former governors kept quiet on this crazy call.

As JFK once observed: “Change is the law of life. And those who look only to the past or present are certain to miss the future”.