Former Commonwealth Bank boss David Murray has questioned the concept of the Reserve Bank’s political ”independence” and said it should be more accountable.
Mr Murray said it was hard to hold the central bank to account because it was responsible for “too many moving parts” in the economy.
Speaking at an economic forum in Sydney, Mr Murray said the RBA was an agency of government and ministers ought to be able to more seriously question its monetary policy decisions.
People could get carried away about ”this independence thing”, he told the Bellwether Series conference, but we needed to clarify what independence actually meant.
“This idea of independence … we use the word, but what do we really mean?
”The government has to run a system where senior political figures are prepared to sit down with the governor … and argue the case and demand of the governor, ‘What if you’re wrong, what would happen then? How do our policy settings look?’ And have a discussion about their fiscal policy verses the central bank’s monetary policy.
“But as others have pointed out, it’s just all been left to the central bank.”
Since the global financial crisis, central banks have increasingly moved away from more traditional inflation targeting policies towards unconventional policy areas, such as asset purchase and bond-buying programs.
The programs have been used to pump trillions of extra dollars into flagging economies, but they have also contributed to global volatility on stockmarkets.
A research fellow at the Centre for Independent Studies, Stephen Kirchner, said that since the GFC central banks had been “blurring the distinction” between monetary and fiscal policy, and these policy levers needed to be separated.
Australia’s Reserve Bank is obligated to use its powers to contribute to the stability of the currency, the maintenance of full employment, and the economic prosperity and welfare of Australians.
But those responsibilities were too unclear and needed to be clarified, Mr Murray said.
Since the early 1990s, the RBA’s core goal has been to keep inflation in check. Its independence was formalised in 1996 by the Howard government.
“What we want is for the charter of the central bank to be absolutely clear, for their authority to act to be absolutely clear, and for their accountability to government to be absolutely clear,” said Mr Murray, who now advises investment bank Credit Suisse.
The executive director of the Australia Institute, Richard Denniss, said there was scope to tighten the RBA’s charter because the initial act was silent on inflation targeting.
The original release of this article first appeared on the website of Hangzhou Night Net.