Former Reserve Bank Governor Bernie Fraser has weighed into the debate on whether executive governments should be prevented from challenging the central bank’s decisions on monetary policy.
In a submission to the parliamentary committee inquiring into proposed reforms to Reserve Bank, Fraser warns against the adoption of a recommendation that would prevent a government from intervening on monetary policy and removing a Governor from office.
Such changes were recommended by the review of the RBA chaired by former Canadian central banker, Professor Carolyn Wilkins. Fraser argues that they are “unhelpful”.
“The Review Panel has expressed support for much of the Reserve Bank’s current monetary policy framework but a few of its recommendations seem unhelpful to me,” Fraser tells the parliamentary committee in his submission.
“These warrant careful scrutiny to avoid chipping away at the effective infrastructure built up over recent decades, and risk damaging the Bank’s hard earned independence and credibility.”
Fraser said that in the past two decades the Reserve Bank had acted with greater real and perceived independence because of inflation targeting and deregulation.
However, the former governor who retired from the top job at the central bank in 1996, insists that the existing arrangements for government intervention (enshrined in section 11 of the RBA Act) should be retained.
“The Government of the day is entitled to challenge- in a reasonable way - the RBA’s decisions when it believes those decisions are seriously out of keeping with the Bank’s charter,” Fraser argues.
“Section 11 provides a legislative path for Governments to pursue such challenges in the Parliament.
“At the same time the Section provides for a right of reply by the Bank to any challenges.”
Fraser also supports retention of the power of executive governments to remove RBA Governors, saying that section 11 lays out a fair process for such an event.
The former monetary policy titan, who oversaw the harshest cash rate settings in Australian history, believes that dumping section 11 would do nothing to enhance the central bank’s independence.
“Rather, the likelihood is that, sooner or later, the vacuum would be filled with alternative processes aimed at clipping the Bank’s independence.”
The current RBA Governor Michele Bullock recently said she was ‘agnostic’ about the proposal to remove government powers to intervene on monetary policy settings.