News&Views no. 41
Henry Thornton on RBA issues
On December 5, I greatly enjoyed an article by John Kehoe and Ronald Mizen. This article reports their main comments, and I will add some thoughts.
RBA chief, Dr Philip Lowe, apparently ignored the advice of an ‘independent review’ with his now infamous ‘no cash rate hike until 2024’. Sadly, this strange event was junked in 2022 with a series of 0.25 monthly increases. In my view, this set was not fast enough, and should be compared with the US Fed’s 0.75 per cent.
Everyone can make mistakes, but in my memory no such forward-positioning by a head of the RBA has ever been carried out. The net effect was a number of house buyers that may need to sell now that rate hikes are rising. Should such persons receive some government assistance, as such people have been badly treated by Dr Lowe, a man expected to avoid offering such foolish ‘advice’. What could he be thinking? How was such advice expected to be helpful to people who brought houses and who now are struggling to pay the additional costs, or will shortly be doing exactly that.
‘Treasurer Jim Chalmers in July launched a major review of the RBA, including the long-standing inflation target, monetary tools, board structure, accountability and culture’. The team doing the review are indeed a powerful set of intellects and will offer some excellent advice.
For what it is worth, I would create an inflation target of 0-2 %, or even tougher, minus one to plus one. Board structure should include less business members and a few people with real expertise in advising central bank decisions, and with the courage to offer advice that sometimes differs to that of the staff of the RBA. Accountability should include the decisions of the RBA board, and that could be expected to be far more carefully considered than Dr Lowe’s speculation about the future. ‘Culture’ should include more sensible payments for staff. Do the senior staff really need to be paid over, or close to, million dollar salaries? Surely a sensible chief does not deserve a salary around twice that of the Prime minister. (And I would not suggest that the PM’s payments get doubled.)
Dr Chalmers has said he will announce a decision on the appointment of the RBA governor around the middle of next year when the review is presented next March. This point aside, I will guess that RBA salaries will be impossible to cut, but other matters in my list of proposals should be possible to achieve.
Fiona Prior visits the most exclusove restaurant in the world. 'The horror! The horror!'. More here.