Greens refuse to support government RBA reforms proposal until interest rates fall

ABC NEWS (Australia)

The Greens have demanded the government force the reserve bank to lower interest rates in exchange for their support. But chief economist Jonathan Kearns says it wouldn't be the best move for the economy.

Transcript

00:00The Treasurer hasn't overruled the Reserve Bank in the era of the independent central

00:07bank, so we're talking about three decades here.

00:10So it would undermine confidence in the ability of the Reserve Bank to implement independent

00:15monetary policy and achieve its objectives for inflation and employment, importantly.

00:21So we haven't had a review of the Reserve Bank's monetary policy operations for more

00:26than three decades that we've been having independent monetary policy.

00:30So this is a really important, significant review that occurred.

00:34Now about half of the recommendations in the review can be implemented by the Reserve Bank

00:40and there are a bunch of others that can be implemented by the Treasury Department, by

00:45the government, without legislation, but there's a small portion that do require legislation

00:51where we're changing the RBA Act.

00:53And so the most significant of those is splitting the Reserve Bank board, creating two boards.

00:59One would be for governance and one would be for setting monetary policy.

01:03So that would be a big change because at the moment there isn't a governance board.

01:07And the aim would be to make the Reserve Bank board setting monetary policy a much more

01:12expert-based board.

01:14The concerns from the Coalition, from the opposition, have been about Labor manipulating

01:20or stacking the board with Labor people and so how that would change the influence that

01:28the government has over the Reserve Bank setting monetary policy.

01:32Now the reality is that the appointments to the Reserve Bank board in its existing stance

01:39are always made by the government of the day.

01:41And so the Coalition, when they've been in government, have appointed people and similarly

01:47for Labor.

01:48But so there is obviously some concern there from the opposition.

01:54The Greens have sort of taken a bit of a back seat on this for some time because the government

01:59was negotiating with the opposition.

02:01But now that the opposition has said that they won't go with this bill, then the Greens

02:09have come to the fore in being the other party that the government can negotiate with.

02:15And the Greens are now insisting that the Reserve Bank would have to cut interest rates

02:19for them to agree on that.

02:21And we're in a situation where inflation is the biggest problem that we have in the economy

02:26and we need high interest rates to reduce inflation.

02:29So what the Greens are asking for would actually be irresponsible economic policy.

02:34So the Governor's last policy decision was very clear that the Reserve Bank board does

02:39not expect to cut interest rates this year.

02:42Given what we see about how high inflation is, how slowly it's coming down, how much

02:48we actually already still have demand in the economy exceeding supply, that's adding to

02:53inflationary pressures.

02:55So we're not in a situation yet where we can cut interest rates.

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