There is broad support for the ‘dual board’ structure put forward for the Reserve Bank of Australia, precipitated by an independent review published last week, titled An RBA Fit for the Future. The question is, with such a deliberate low-touch relationship with the media, could the RBA Governor have done more to defend his role and public reputation?
Ironically, over-communicating monetary policy outlooks – which helped the current RBA Governor get into the mess he’s in – is set to intensify due to the changes set to be implemented. Statements issued will almost double, accommodating the views of the existing RBA Board as well as its new sibling, the Governance Board. This will prove great fodder for reporters, but only adds to the discipline required to convey carefully hedged, nuanced guidance.
The most significant proposal is to establish a ‘Governance Board,’ which would include the RBA Governor, a COO and five private-sector board members. The idea behind this is to have separation between monetary policy decision making and the governance of the institution itself, currently co-mingled in the responsibilities of the Governor and his RBA Board.
The review is littered with diplomacy so not to been seen as a scolding of the current RBA Governor, Philip Low. However, the call for the review was made in July 2022, around six months after Lowe’s prediction of rates remaining close to zero began to unravel, as annual core inflation took off on its trajectory from 3% in January 2022 to a peak of 8.3% by the end of that year.
Why the controversy?
The forecast of lower rates for longer contributed to less Australians locking in fixed-term rates prior to the subsequent rate hikes. This created anger among those overleveraged voters who bullishly bid their way into booming housing markets at that time, and it did contribute to RBA losses from its bond-buying program at the top of the cycle. However, one could also argue that failures like this, which took place during extraordinary economic conditions, sharpen future considerations and have made Lowe a better operator as a result.
Much of the negative feedback that led to these changes was driven not just by the public, but by the financial services sector. Some fund managers incorporated a longer emergency-rate cycle into their positioning, which would have led to poor performance by those taking overweight positions in bonds, particularly in the short-end of the curve. Contrarian managers and bank treasury departments, however, will now be justified in flexing strong opinion, second-guessing future RBA guidance and creating great opportunities for counter-cyclical media comments and contributions.
A mixed media reception
Coverage of this news has been mixed. Conservative financial media doesn’t want the centre-left government to clock up an easy win; so, while central bank interference is generally the purview of the right, headlines from News-Corp-owned The Australian have included: “Chalmers’ overhaul creates new risk of miscommunication” and “Hold your applause: RBA review doesn’t explain central bank’s problem.” The more centrist AFR didn’t vary too much in its position from The Australian, with “RBA enters a new era of expertise and diversity” and “RBA told to communicate better but Lowe also ware of too much ‘noise’” on the day the review was released.
The politics of the RBA & the Treasury
The role of the RBA just got more political, and more public. Regardless of the timing of the review and whether it ultimately proves to be a good thing or bad, the recommendations and the prospective legislation of them have bipartisan support. The government has support of the conservative opposition Treasurer, and perhaps this paves the way for more private sector views when it is their turn to govern.
The current Labor government governs from the centre and its Treasurer, Jim Chalmers, is comfortable with fiscal conservatism when required. Another interesting attribute of Jim Chalmers is his adoration of former Labor Party Treasurer and then Prime Minister, Paul Keating. Charmers wrote his PhD on Keating in 2004 and admitted that one of Keating’s flaws was that he did not maintain a sound relationship with the media.
Chalmers has a modest, relatable, candid and authentic style when facing the media, while his hero Keating only managed to exhibit the latter two of those attributes. Keating was not a character who was able to contain his humour, wit and cynicism, which readers can observe below.
Bipartisan initiatives – like the prospective RBA changes and the recent $300b-odd nuclear AUKUS submarine deal – are perhaps receiving too much public support due to a lack of scrutiny by a majority of reporters in the media. Bipartisan narratives invariably gel with the pollical orientation of the larger Australian publishing networks, who have some cultural alignment with either one of the two major Australian political parties.
It is hard not to feel for RBA Governor Philip Lowe. Like the Gordon Browns and Peter Costellos of this world, he took the reins from his more popular predecessor Glenn Stevens following a dream term and had huge boots to fill. He never managed to elevate himself to the untouchable status necessary to ward off the kind of influence that the Bank is currently subject to by the Australian Treasurer. Lowe will either roll with the changes or choose to bow out on a low-point when his seven-year term ends in September, if indeed he is invited to continue.
As the charming Jim Chalmers goes about courting the Australian media, so too might the next RBA Governor. This would ensure their personal profile demands the respect of the Australian people that would help maintain the status quo and attract forgiveness, when they invariably make a bad call from time to time.
In the end, this entire fiasco was driven by something that sits at the heart of most successes and failures – good communication. Aside from perhaps a handful of opaque operators in the hedge fund and family office space, anyone who thinks they can protect their profile – in the private or public sector – by hiding from the media is plain wrong.
Scott Schuberg is the managing director of Cognito Australia