The board of the Reserve Bank meets every month. The critical item on the agenda each month is interest rates. Upon this decision lies the financial fate of lenders and borrowers across the nation, including mortgagors, self-funded retirees and business lenders and borrowers. The decision-making process is a fairly secret one. No minutes are kept. No reasons given publicly. There is just a result: either up, down or stay the same.
This week an outgoing member of the board, Adrian Pagan, called for reform so that board members could spend more time on monetary policy, especially interest rates. He called for higher pay so people with expertise and time would be attracted to the board members.
Professor Pagan is the sole academic member of the board. The other members are three ex-officio members – the Governor and Deputy Governor of the bank and the Federal Treasurer — and six others, at least five of whom must not be on the staff of the bank. At present all six are from outside the bank, which is fine. But five of the six are from business people. With the departure of Professor Pagan, there will be no academic. There is no-one from outside business to widen the board’s perspective. There should be. The bank has a responsibility to the whole Australian community. What is good for business, might not be good for the whole community. Certainly, the Government should look very carefully at who should replace Professor Pagan. It should not be a business person, because there are five existing business people on the board and a diversity of opinion is needed. It should be another academic or someone from outside business. The replacement for the other retiring board member, Treasury Secretary Ted Evans, is another matter. His replacement must be judged by who is the best person for the job as Treasury Secretary.
Professor Pagan makes a sound point about board members getting enough time to do the reading a research necessary to come to a considered view about monetary policy. He rightly called for board members to get access to staff and research resources of the bank and elsewhere to help them come to a more considered view. He is right about the board being reactive, rather than pro-active, at present. There is a case to be made that they are prisoners of the three ex-officio members and the research papers of the bank’s staff, despite the fact they come from outside the bureaucracy.
But independent analysis takes time, and, according to Professor Pagan, should sound in better pay.
At present, board members by and large have to rely on the undoubtedly well-researched views of the bank’s staff which are presented each month. Still, that is only one view of the world. Professor Pagan is probably right about the time element. It must be difficult for people like Hugh Morgan and Alan Jackson to run large businesses and find time to devote to obtain and study independent analyses of monetary policy. But is extra money the answer. These people are on huge salaries already. Surely, the position of reserve bank board member entails another sort of equation. Not work for money, but public service for prestige.
If we are to go down the Pagan route and quantify the contribution more in money terms, the public is entitled to monitor whether it gets value for money. Perhaps the minutes of board meetings should be made public (after a suitable interval). Perhaps board positions should be advertised and the process of appointment made more public.
In the past few years the processes of the bank have become more open with the six-monthly report and regular appearances before Parliament’s finance committee. It has become more accountable to the Government with the inflation target. But its monthly meeting remains a secret process. Given so much hangs on it, some further openness would be welcome.