Reserve Bank given biggest overhaul in a generation

The Albanese government has released the first external review of Australia's central bank and the operation of monetary policy in four decades. There are 51 recommendations that will affect the way interest rates are set in Australia and how the RBA operates internally.

KEY RECOMMENDATIONS

* The RBA should have a "monetary policy board" with greater economic expertise, moving to eight meetings a year (instead of monthly) to allow more time to consider issues.

* The RBA should hold a media conference after each meeting to be more transparent, and board members should speak publicly about the board's work.

* An RBA "governance board" with an external chair should be appointed to oversee the bank's organisational strategy, finances, staff planning and risk management, with no role in monetary or payments policy or financial stability.

* The RBA should give equal consideration to the objectives of price stability and full employment: "The economic prosperity and welfare of Australians now and in the future should be an overall purpose for the institution."

* The RBA's power to direct the lending policies of private banks should be removed.

* The inflation target of two to three per cent should be retained.

* Five-yearly reviews of the RBA's monetary policy framework and policy tools should be conducted.

WHAT THE GOVERNMENT WILL DO

* The government will legislate changes (expected to start in July 2024) to do three things: reinforce the independence of the RBA by removing the government's right to veto its decisions; separate the monetary policy board and governance board; and clarify the dual objectives of price stability and full employment.

* Two new board members will be appointed: former industrial umpire Iain Ross and businesswoman Elana Rubin.

* A new statement on the conduct of monetary policy will be issued before the end of 2023.

INTERNAL CRITICISM OF THE RBA

Staff member feedback is included in the review report.

* "(There is a) 'we've always done it this way' attitude."

* "Managers tend to only see change through a cost lens."

* "Departments are run as 'fiefdoms', who come up with their own ways of doing things in terms of processes and delegation."

* "There is a perfectionist culture at the bank that results in 'gold-plating' internal work. This can result in timelines for pieces of work being stretched for little additional benefit."

Australian Associated Press