The review of the Reserve Bank of Australia has raised the prospect of a separate monetary policy board, made up of monetary policy experts and economists, that would be distinct from the current RBA board.

The review panel released an issues paper yesterday and, as expected, the role of the board and its make-up is a central consideration. The paper points to the fact that a number of central banks have separate monetary policy boards.

The issues paper also raises the prospect of a more flexible inflation targeting framework to allow the central bank to deal with circumstances that make it difficult to meet its inflation and full employment objectives.

The panel will also look at more radical proposals, such as a shift to a target for nominal gross domestic product or nominal gross national expenditure.

The issues paper makes clear that, at this stage, the panel has an open mind. What is important is to ensure that monetary policy, fiscal and macroprudential policy “take heed” of each other.

“Beyond this, whether and how these policies can better complement each other is open for debate,” the issues paper says.

The review will also attempt to assess the usefulness of the tools the RBA has used in crisis situations, such as yield targeting, the term funding facility and bond purchasing. The RBA itself has reviewed the efficacy of some but not all of these tools during COVID.

Another area of focus is the inputs to monetary policy decisions, particularly economic forecasts and economic and statistical models.

“Economic forecasts are a key input, because policy changes take time to have their full effect,” the issues paper says.