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RBA: Obsession with interest rates threatens our independence

Deputy Governor Guy Debelle warns of danger to the Reserve Bank’s ability to operate without Government interference

Public focus on interest rates is putting the independence of the Reserve Bank of Australia at risk, according to its deputy governor.

Speaking at a conference of central banks last week, Guy Debelle warned that “a new threat to central bank independence comes from the greater focus currently on the distributional consequences of monetary policy.”

Setting interest rates had always had an impact, Debelle noted, but these may be amplified by house prices “if a primary transmission channel of unconventional monetary policy is through asset prices (including house prices), then the wealth channel may be playing a disproportionately larger role than in the past.”

Debelle argued that the public overestimated the ability of the central bank to change the economy. “My view is that inflation targeting and central bank independence are being blamed for economic outcomes that are not a consequence of either of them, but rather of our understanding of the way the economy operates.”

Morrison on RBA

Although established in 1959, the RBA’s independence was only made explicit by then-treasurer Wayne Swan in 2007.

The RBA adjusts the cash rate to meet an agreed inflation target in order “to maintain price stability, full employment, and the economic prosperity and welfare of the Australian people.” The RBA’s cash rate decision is made independent of the Government.

In 2016 treasurer Scott Morrison suggested that the RBA’s monetary policy was becoming ineffective. He again clashed with the bank in 2016, when governor Philip Lowe claimed that inequality had risen, mid-way through an election campaign.

Morrison has focused on the issue of banks not passing on RBA cash rate changes, asking the Australian Competition and Consumer Commission to investigate the issue.

ASIC and APRA 

The RBA is different from ASIC and APRA, which are more tightly controlled by the Government.

ASIC chairman Greg Medcraft is due to step down in November and could be replaced by a personal friend of Prime Minister Malcolm Turnbull. Credit Suisse investment bank chairman John O’Sullivan, who previously worked at Commonwealth Bank is up against internal candidates include ASIC commissioners John Price and Cathie Armour.

 

 

 

 

SOURCE: www.mpamagazine.com.au 29 September 2017
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