Finance Minister Katy Gallagher and Treasurer Jim Chalmers say they won’t compromise the independence of the RBA Board by instructing it to lower interest rates. Photo: Andrew McLaughlin.
The Federal Government’s efforts to implement reforms to the Reserve Bank of Australia (RBA) are being thwarted by the Greens because they believe Treasurer Jim Chalmers should instruct the RBA to reduce interest rates.
The government’s Treasury Laws Amendment Bill 2023 aims to amend the Reserve Bank Act 1959 to improve governance of the RBA by establishing a new Governance Board and a new Monetary Policy Board.
It says the Governance Board’s functions would be to oversee and determine policies for the management and organisational affairs of the RBA, and decide the RBA’s policies for delivering banking services to the Commonwealth.
The Monetary Policy Board’s role would be to determine the monetary policy of the RBA to best contribute to price stability and the maintenance of full employment in Australia.
Labor had hoped to clear the legislation during the current sitting, but the Greens say they won’t pass the RBA reforms until interest rates are cut by at least 25 basis points – a quarter of 1 per cent – to relieve pressure on household incomes.
While most politicians are reluctant to provide commentary on what the RBA might do, for fear of compromising its independence, the Greens say the Treasurer has the power to override the RBA’s decisions under Section 11 of the Reserve Bank Act.
The Greens say the reforms are actually designed to end what it says is “the pretence that the RBA is independent and above politics”, and that members of Parliament, including the Treasurer and Shadow Treasurer of the day, should be able to debate, criticise, oppose or support the RBA’s actions.
Australian Greens economic justice spokesperson Senator Nick McKim said the Greens were using their power in Parliament to fight for renters and mortgage holders.
“The Treasurer has the power to step in, he’s just not using it,” Senator McKim said. “The Reserve Bank could act, but they are not acting. Mortgage holders are getting smashed right now.
“For weeks the Treasurer has acknowledged the economy is being smashed and that mortgage holders are being smashed by high interest rates – yet to date, he’s done nothing about it despite having the power to reduce interest rates.
“Mortgage holders are struggling to cover their bills, with the RBA’s Governor admitting some will need to sell their homes.
“We aren’t going to pass Labor’s Reserve Bank reforms until interest rates are cut.
“The Reserve Bank Board are not infallible high priests of the economy who are above criticism. Both the Treasurer and the Reserve Bank Governor have said they want this legislation passed. Now they know what they have to do to get it done.”
However, the Treasurer said the independence of the RBA would remain.
“The Reserve Bank takes its decisions independently, and they weigh up a whole range of factors and a whole bunch of different data and numbers in the economy,” Mr Chalmers told SKY News on Sunday (22 September).
He said that, despite other countries starting to relax monetary policy as inflation fell, he was not expecting the RBA to drop interest rates this month.
“As you know, I don’t get in the business of pre‑empting decisions that they take independently,” he said.
”They’ve got an important meeting over the next couple of days.
“I think the main reason why our inflation’s a little bit higher than some of those countries is because they peaked earlier than we did, and in many cases much higher than we did.
“The Reserve Bank Governor and others have pointed out that the shape of our inflation is broadly the same as a number of other countries but a couple of months behind the trajectory that we’ve seen elsewhere.”
Finance Minister Senator Katy Gallagher said that, despite the Greens’ threats, the Government would not be instructing the RBA on monetary policy.
“We won’t be doing what the Greens are issuing through their ultimatum,” she told media on Monday morning (23 September).
“It’s just crazy. And you know, it’s ridiculous that after 30 years of stable, good economic architecture in this country, they would be seeking to undermine that with this position.
”It’s a populist position, they’re out craving votes. They’re not actually serious about any economic policy or economic reform.”
Despite the legislation in effect being dead in the water without the Greens’ support, Senator Gallagher wouldn’t be drawn on the future of the reforms.
“Well, the reforms are there,” she said. “I would say that if the Greens are going to continue on this crazy economic ultimatum, the pathway through is with the Opposition. And I would have thought a party of government would have been engaging on sensible economic reforms, or sensible reforms to the RBA.
“And so, I would urge them to reconsider. But we remain committed to these reforms. The Reserve Bank itself thinks that they are sensible reforms and we would look to work with others to get it through.”
