Live news updates: Australia launches first major review of its central bank

Australia has launched the first major review of its central bank in decades, after the Reserve Bank of Australia was criticised for delaying interest rate rises as inflation has run rampant, leading its governor to describe its forecasting as “embarrassing”. 

The review, launched by treasurer Jim Chalmers, could result in the first significant restructuring of the RBA since the 1990s. It will consider the performance of the bank, its board composition and its inflation targeting strategy. 

As the Australian economy has emerged from the pandemic, the RBA has been widely criticised for keeping the cash rate — the metric used to define interest rates — at historic lows, even while other countries increased lending rates to curb inflation. 

The RBA was forced to implement a small rate rise in May, during Australia’s election campaign and almost six months after New Zealand’s central bank did so, when inflation hit 5 per cent. It has raised rates twice since, abandoning the dove-like stance it had maintained well into 2022. 

With the RBA having indicated that it had expected to keep rates as low as possible until 2024, Philip Lowe, the central bank’s governor, said in May that its forecasting had been “embarrassing” .

“We should forecast this better. We didn’t,” he said. 

In a speech made on Wednesday, Lowe welcomed the government’s review, saying it was possible to return inflation to the target range of between 2 per cent and 3 per cent while keeping the economy on an “even keel”.

Belinda Allen, senior economist at CBA, said: “Unlike other central banks, where a recession is required to bring inflation down, the RBA remains committed to lifting interest rates but still allowing for economic growth (albeit a moderation) and low unemployment.”