Australian Economy

Michelle Bullock’s Reserve Bank of Australia starts a new era on Monday. Here’s how it will play out

Economists expect the RBA to keep the 4.35 per cent cash rate on hold on Tuesday, following softer-than-expected inflation data of 4.1 per cent for the December quarter.

Press conferences begin

Governor Michele Bullock spent last week preparing for her first press conference with new chief communications officer Sally Cray, a former adviser to former prime minister Malcolm Turnbull.

RBA governor Michele Bullock will hold the first board meeting of the year on February 5 and 6. Oscar Colman

The only other time a press conference was held at RBA headquarters in Martin Place in Sydney following a board meeting was by governor Philip Lowe, to explain extraordinary decisions during the pandemic.

In effect, this will increase public communications from the bank about monetary policy, which had previously relied on a one-page statement and speeches in the days and weeks following the meeting.

Two-day meeting

The meeting will now run for two half days, instead of a half-day on Tuesday.

Monday will involve presentations from RBA staff on the state of the economy and markets, along with the outlook, starting at 2pm Monday until around 5:30pm.

The board will spend about 3½ hours discussing these issues – about twice as much as previously. “The idea is not for longer presentations but for members to have more time to discuss, probe and deepen their understanding of the issues,” Ms Bullock said in a speech last November.

The board will reconvene at 9am Tuesday to consider the policy decision. Ms Bullock said this will have the benefit of members being able to reflect overnight and raise any further issues or questions before the policy decision is made.

During the four-meeting hours on Tuesday, members will also finesse the post-meeting communication to appear in the written statement from the board, instead of a statement solely from the governor.

Forecasts brought forward

The separate and more detailed quarterly Statement on Monetary Policy (SMP) will be released on Tuesday, brought forward from Friday. This contains the full details of forecasts on economic variables such as inflation, unemployment and growth, as well as the bank’s latest assessments of emerging issues.

The new SMP be a slightly abridged version to make it more reader-friendly.

De-identified board votes won’t be disclosed until around the middle of the year, when a new specialist monetary policy board and separate governance board are due to commence.

JPMorgan economist Ben Jarman says the new communications and board changes have the potential to “add noise”.

Former governor Ian Macfarlane has warned the overhaul could lead to “radical” changes to monetary policy because the governor may lose authority over setting interest rates.

Board appointments

HSBC chief economist and former RBA official Paul Bloxham said the changes are big adjustments for how the RBA determines and communicates its monetary policy decisions,

“The big changes to RBA internal processes could affect the monetary policy reaction function, although this will depend largely on who is appointed to the new board and, even once this has been announced, will take time to discern.”

So far, Dr Chalmers has appointed former Fair Work Commission president Iain Ross and former AustralianSuper chairwoman Elana Rubin.

RBA historian Selwyn Cornish said a review of the bank’s archives suggest that there has never been an RBA board meeting on a Monday.

“Before the Reserve Bank commenced operations in January 1960 the Commonwealth Bank was both the central bank and a government-owned commercial bank.

“Its board meetings were on Wednesday and Thursday – a two day meeting because of the commercial banking and central banking matters that the board had to cover.”

“Initially it would appear that the Reserve Bank met on Wednesdays; the meetings were later changed to Tuesdays.

Fundamentals unchanged

Mr Bloxham said: “The fundamentals of Australia’s monetary policy framework are essentially unchanged.

“The inflation target is still 2-3 per cent, the time frame to bring inflation back to target remains flexible, and the main policy tool for achieving it is the cash rate.

“The RBA remains independent – indeed, once the legislation associated with the Review is passed, likely early this year, its independence will be even more explicitly enshrined.”

Dr Ellis, a former long-time RBA insider, said the changes “won’t hurt, but it’s not obvious they will make a major improvement”.

RBA watchers say one challenge for Ms Bullock may be navigating “gotcha” questions from some journalists at Tuesday’s press conference.

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