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Speaker 1: My name is Lily Maddon and I'm a proud Dunda

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Speaker 1: Bungelung Calcuttin woman from Gadigl Country. The Daily oz acknowledges

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Speaker 1: that this podcast is recorded on the lands of the

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Speaker 1: Gadighl people and pays respect to all Aboriginal and Torres

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Speaker 1: Strait Island and nations. We pay our respects to the

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Speaker 1: first peoples of these countries, both past and present.

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Speaker 2: Good morning, and welcome to the Daily Ours. It's Monday,

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Speaker 2: the twenty fourth of April. I'm Nina filling in for Zara.

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Speaker 3: And I'm Tom filling in for Sam.

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Speaker 2: The bosses are away.

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Speaker 3: Tom Zara is in Mexico, of course, still in Mexico,

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Speaker 3: and Sam is celebrating getting engaged.

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Speaker 2: And you know what, Tom, nothing screams love like talking

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Speaker 2: about the RBA. The Reserve Bank is on the brink

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Speaker 2: of its biggest shake up in a generation.

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Speaker 3: The RBA is bracing for changes to the way it

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Speaker 3: operates after the release of a major review. It comes

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Speaker 3: in the midst, of course, of a cost of living

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Speaker 3: crisis and a series of interest rate rises. Today we're

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Speaker 3: going to look at what this review recommended and what

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Speaker 3: it means for you. But first the headlines.

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Speaker 2: Tributes to Barry Humphries have been offered across the country

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Speaker 2: after the legendary Australian entertainer died at the age of

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Speaker 2: eighty nine. Humphries was best known for his alter ego

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Speaker 2: Dame Edna Everidge. He also played the fictional character of

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Speaker 2: Sir Les Patterson and was involved in many films and

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Speaker 2: TV shows. He was hospitalized in Sydney after experiencing complications

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Speaker 2: following a hip surgery. A statement from Humphreys' family said

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Speaker 2: that while he may be best remembered for his work

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Speaker 2: in theater, he was a lover of art in all

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Speaker 2: its forms.

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Speaker 3: Mark Speakman has succeeded Dominic Perete as the leader of

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Speaker 3: the New South Wales Liberal Party. Perrote stepped down from

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Speaker 3: the role of course after he was defeated at last

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Speaker 3: month's state election. Speakeman was the Attorney General in the

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Speaker 3: last term of parliament. He was elected to the role

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Speaker 3: of opposition lead following a party room vote on Friday,

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Speaker 3: and he'll sit opposite Premier Chris Mins in the new

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Speaker 3: New South Wales parliament.

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Speaker 2: The federal government has announced new citizenship laws for Kiwis

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Speaker 2: In Australia. Citizens from New Zealand will soon be able

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Speaker 2: to apply for Australian citizenship after just four years in

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Speaker 2: the country without becoming a permanent resident first. The announcement

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Speaker 2: came ahead of a meeting between PM Anthony Albanizi and

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Speaker 2: New Zealand's Prime Minister Chris Hipkins yesterday in Brisbane, with

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Speaker 2: Hipkins saying that these reforms will bring New Zealand and

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Speaker 2: Australia closer together.

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Speaker 3: And the good news. A lioness has appeared on a

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Speaker 3: remote camera in a national park in the African country

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Speaker 3: of Chad, where lions were thought to be extinct. It's

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Speaker 3: the first time a lion has been spotted in the

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Speaker 3: park in nineteen years, and it's been celebrated as a

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Speaker 3: sign that conservation efforts in the area are working. The

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Speaker 3: Chad government and the Wildlife Conservation Society described the lioness

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Speaker 3: as in her prime and in great health. That's lovely,

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Speaker 3: so Nina. THEBA is set for shakeup after what I

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Speaker 3: have to say was a pretty scathing review commissioned by

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Speaker 3: the government and handed down this week. It found the

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Speaker 3: board lacks sufficient expertise and it has a broader cultural problem.

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Speaker 3: That's a pretty big deal. I mean, the RBA is

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Speaker 3: something we talk about a lot. We've had a number

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Speaker 3: of interest rate rises over the last year. We know

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Speaker 3: that that impacts all of us. So when we hear

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Speaker 3: something significant like this about the RBA, especially a bad

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Speaker 3: report card, it's certainly a story that I think will

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Speaker 3: be of some interest.

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Speaker 2: Tom. We do talk about the RBA on the POD,

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Speaker 2: especially in light of what's been happening the last year

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Speaker 2: or so, but we don't often talk about how the

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Speaker 2: RBA actually works. So before we get into this report

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Speaker 2: and what it's recommended, can you just give us a

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Speaker 2: bit of an explanation about how it operates?

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Speaker 3: I can.

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Speaker 2: So.

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Speaker 3: The RBA is Australia's Central Bank. Central banks are a

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Speaker 3: feature of you know, just about every country in the world,

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Speaker 3: and they usually their government banks, but they tend to

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Speaker 3: operate into pendently of politicians, and their main job is

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Speaker 3: I guess, overseeing I guess the stability of the economy

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Speaker 3: and keeping tabs on the health of the economy, maybe

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Speaker 3: you'd say. And their main tool to influence that is

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Speaker 3: interest rates, something that we've spoken about a lot on

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Speaker 3: the POD, and when we talk about interest rates when

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Speaker 3: it comes to central banks, what we're actually talking about

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Speaker 3: is something called the cash rate. Basically, it's an interest

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Speaker 3: rate that the RBA charges banks, and what that does

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Speaker 3: is it affects the cost of borrowing money across an economy,

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Speaker 3: and that is the main way that the RBA can

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Speaker 3: tweak economic settings. And it's board meets every month except

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Speaker 3: January to make decisions on how that interest rate should change.

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Speaker 2: When the RBA does get together, what are the things

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Speaker 2: they're looking at to inform these decisions that they're making.

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Speaker 3: So there are kind of two considerations and they pull

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Speaker 3: in different directions. Consideration number one is inflation, something we

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Speaker 3: again talked a lot about. As we know, as we've

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Speaker 3: seen recently, high inflation, fast growing prices can have really

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Speaker 3: bad consequences, and raising interestrates is one of the main

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Speaker 3: tools that we have to fight that inflation. So when

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Speaker 3: you have higher interest rates, you're discouraging borrowing and by extension,

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Speaker 3: you're discouraging spending, and that's supposed to cool off rising prices.

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Speaker 3: That is exactly what's been happening over the last year

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Speaker 3: or so. On the other hand, though, I guess the

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Speaker 3: other kind of key economic variable alongside inflation that the

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Speaker 3: RBA has to worry about is employment, jobs, and if

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Speaker 3: rates are too high and spending is discouraged too much,

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Speaker 3: this is kind of the other side of the coin.

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Speaker 3: If you go too far in that direction, well, you know,

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Speaker 3: less spending means fewer jobs. You know, it's less economic activity.

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Speaker 3: And so on the one hand, the central bank wants

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Speaker 3: to use the interest rate to fight inflation, as it's

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Speaker 3: doing at the moment, but on the other hand, it

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Speaker 3: has to balance that against the amount of unemployment. Now,

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Speaker 3: the way that the does this at present is it

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Speaker 3: aims not for zero inflation, but it aims for what

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Speaker 3: it calls low and stable inflation of about two to

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Speaker 3: three percent. And that's broadly something that is viewed as

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Speaker 3: I guess, balancing these two things, you know, keeping inflation

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Speaker 3: low ish on the one hand, but also making sure

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Speaker 3: you don't have kind of unnecessary unemployment on the other hand.

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Speaker 2: So if the interest rate rises that we've seen have

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Speaker 2: been as a result of them weighing up all of

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Speaker 2: these things and trying to make informed decisions about how

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Speaker 2: to move forward and keep that balance in place, what's

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Speaker 2: gone wrong.

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Speaker 3: So they're kind of I mean, at least in the

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Speaker 3: recent history of the RBA, there have been two main criticisms.

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Speaker 3: The first one, we've got to go back to twenty sixteen,

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Speaker 3: and we're in a very different world to the one

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Speaker 3: that we're in now. At the moment we're worried about

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Speaker 3: high inflation. Back then, it was the opposite problem. Inflation

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Speaker 3: was actually very low, and the criticism of the RBA

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Speaker 3: was that at this time they were keeping rates a

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Speaker 3: little higher than they needed to be. They were sort

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Speaker 3: of around, you know, twoition percent. The view was that

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Speaker 3: having these rates too high meant that unemployment was higher

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Speaker 3: than it needed to be, and economists believe that over

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Speaker 3: the period from twenty sixteen to twenty nineteen that there

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Speaker 3: were effectively hundreds of thousands of Australians who didn't have jobs,

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Speaker 3: effectively because the RBA was keeping its rates too high.

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Speaker 3: It was too nervous about inflation. That's basically how the

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Speaker 3: argument goes. So that was kind of issue number one.

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Speaker 3: Then along comes COVID. Rates go very very low because

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Speaker 3: the RBA is trying to generate as much economic activity

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Speaker 3: as it can. But the second problem comes when we're

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Speaker 3: emerging out from COVID, and this time it's really a

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Speaker 3: communications problem. So what happens at the end of twenty

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Speaker 3: twenty one is that RBA Governor Phil Low gets up

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Speaker 3: and he says, basically trying to keep people calm and

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Speaker 3: trying to make them not worry too much about inflation,

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Speaker 3: he says, look, we're not expecting to raise interest rates

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Speaker 3: until at least twenty twenty four.

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Speaker 2: And that was when they were low during that COVID period.

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Speaker 3: Yeah, exactly, Yeah, so they're really low. And he said, look,

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Speaker 3: we're going to leave them low, we think until at

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Speaker 3: least twenty twenty four. And there were a bunch of

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Speaker 3: you know, there was some fine print attached to that,

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Speaker 3: but that's what he said. That's what people heard. And

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Speaker 3: then the world changes, and then you get this big

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Speaker 3: global inflation problem, and of course at that point the

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Speaker 3: RBA has to change its mind and they say, oh no, sorry,

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Speaker 3: we've got this inflation now. Actually, we do have to

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Speaker 3: raise interest rates, just like every central bank in the

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Speaker 3: world has done. But having said that kind of you know,

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Speaker 3: declarative statement about twenty twenty four, there are a lot

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Speaker 3: of people who felt that the RBA had broken its promise,

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Speaker 3: who maybe made a decision to buy a house on

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Speaker 3: the expectation that the interest rates weren't going to change,

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Speaker 3: and that was really the catalyst for what has been

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Speaker 3: a year of quite a bit of anger at the RBA. Now,

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Speaker 3: you know, RBA raising interest rates again is what every

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Speaker 3: central bank in the world is doing. But a lot

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Speaker 3: of the anger here in Australia I think over the

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Speaker 3: last year or so has come from, Yeah, this feeling

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Speaker 3: about poor communication from the RBA. So those are the

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Speaker 3: two big criticisms, at least in recent history.

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Speaker 2: But it is the role of the RBA to make

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Speaker 2: this decision. So what led to this formal review into

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Speaker 2: their decisions?

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Speaker 3: Yeah, well, I think it's a really good point you

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Speaker 3: make there, because I mean, the whole reason that the

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Speaker 3: RBA is separate from politicians is because its decisions are

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Speaker 3: going to be unpopular and that's why we don't leave

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Speaker 3: them to the politicians. And so this is a review

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Speaker 3: that was commissioned by politicians. But it would be wrong

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Speaker 3: to think about it as kind of, oh, well, everyone

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Speaker 3: was angry at the RBA and so the government decided

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Speaker 3: to intervene. Really, this review came from a place of thinking, well,

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Speaker 3: you know, the RBA's again, you know, had some critiques

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Speaker 3: of its process and the way that it's handled things,

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Speaker 3: maybe it's time to get some independent experts in to

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Speaker 3: just have a look at the way that it makes

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Speaker 3: its decisions and to see whether there's room for improvement.

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Speaker 3: So it was an idea that was first raised by

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Speaker 3: former Treasurer Josh Fredenberg. Then there's a change of government.

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Speaker 3: The new treasure of Jim Chalmers has picked up the

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Speaker 3: same idea. He set up the panel and now we've

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Speaker 3: had its report in the last week, and what did

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Speaker 3: it say. It was pretty scathing. It was a really

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Speaker 3: pretty pretty bad report card. I think it's fair to

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Speaker 3: say for the RBA. I mean, these sort of reviews

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Speaker 3: are always kind of you know, presented in very polite language,

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Speaker 3: and it said lots of positive things about the RBA,

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Speaker 3: but its assessment of the RBA was essentially that its

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Speaker 3: leaders had presided over a culture where there was no

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Speaker 3: real debate happening. So, you know, staff felt there was

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Speaker 3: a culture where you know, they couldn't raise contrary opinions

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Speaker 3: to their boss, you know, where things weren't really fleshed

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Speaker 3: out within the organization the board. The review said that

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Speaker 3: the board you know, really lacked the technical expertise to

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Speaker 3: have a proper debate. So the board members tend to

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Speaker 3: be drawn mostly from the business community, and you know,

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Speaker 3: they have a perspective that they bring, but they don't

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Speaker 3: necessarily have, you know, technical economic expertise to be having

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Speaker 3: a you know, a really kind of substantive debate about

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Speaker 3: what should happen to interest rates.

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Speaker 2: I do find that kind of confusing, to be honest.

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Speaker 2: It does seem like a non logical setup for the

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Speaker 2: system that is going to be deciding how our economy runs.

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Speaker 1: Well.

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Speaker 3: Absolutely, I mean these are really difficult decisions, and they're complex,

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Speaker 3: you know. I mean I studied economics at UNI, and

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Speaker 3: all this stuff about interest rates and macroeconomics when you

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Speaker 3: really get down into the weeds of it, made my

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Speaker 3: head hurt. There's a lot of very complicated mathematics. The

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Speaker 3: financial system's really complicated. You know, this is a field

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Speaker 3: of significant expertise, and I think, I mean, maybe some

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Speaker 3: people would just assume that the RBA was kind of

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Speaker 3: having these discussions, but I think the review kind of

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Speaker 3: casts some doubt on that question, and I guess spoke

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Speaker 3: about this, Yeah, this general culture of group think that

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Speaker 3: also extended to kind of its comms. You know, a

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Speaker 3: lack of kind of communications expertise. So for example, when

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Speaker 3: Phil Low got up and said this thing about I

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Speaker 3: don't plan to raise interest rates until twenty twenty four,

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Speaker 3: the review found that there was no evidence that the

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Speaker 3: RBA had actually had any discussion about how those words

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Speaker 3: might be interpreted or misinterpreted. That that just that conversation

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Speaker 3: hadn't happened. You know, there wasn't really an in depth

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Speaker 3: communications discussion from that kind of perspective about you know,

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Speaker 3: how those words would land. So yeah, it was a

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Speaker 3: pretty pretty poor report card. And you know, I mean,

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Speaker 3: broadly speaking, now, fifty one recommendations all up, but all

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Speaker 3: really geared towards that culture of debate and making sure

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Speaker 3: that the RBA's processes are as rigorous as we would

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Speaker 3: expect them to be.

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Speaker 2: And are these changes likely to be implemented.

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Speaker 3: Yes, So the government very quickly said that it's supported

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Speaker 3: in principle all fifty one recommendations. So supporting principle basically

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Speaker 3: just means, oh, look, we're going to take a bit

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Speaker 3: of time to figure out exactly how we want to

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Speaker 3: implement this. But you know, essentially there is nothing in

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Speaker 3: there that the government disagrees with, and that seems to

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Speaker 3: be basically true of the opposition as well. So the

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Speaker 3: government's been really keen to involve the opposition. They've been

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Speaker 3: working with the review as well, and Shadow treasure Angus

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Speaker 3: Taylor spoke really favorably about it, and the Treasurer says

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Speaker 3: the plan is basically to work with the opposition to

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Speaker 3: come up with a set of changes to enact these

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Speaker 3: recommendations that both parties are happy with in the interests

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Speaker 3: of kind of, you know, making sure that this issue

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Speaker 3: doesn't get politicized. And so that's what we'll expect to

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Speaker 3: happen the RBA as well. So Phil Low gave a

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Speaker 3: press conference last week, generally supportive of the recommendations in

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Speaker 3: broad strokes, but pretty defensive. It's fair to say. It's

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Speaker 3: pretty defensive about the organization's performance, about the board, about

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Speaker 3: his own performance, as I suppose you'd expect when when

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Speaker 3: he was so heavily.

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Speaker 2: Criticized and his jobs on the line.

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Speaker 3: His jobs on the line. So in September his term

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Speaker 3: is up. They have five year terms RBA governors. He

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Speaker 3: can be reappointed by the Treasurer. Remains to be seen

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Speaker 3: whether they might decide that you know better that somebody

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Speaker 3: else be the person to make these changes. So that'll

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Speaker 3: be an interesting one to watch later in the year.

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Speaker 2: For sure, Tom. For people who have been feeling the

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Speaker 2: sting of these interest rate raises, and we've discussed on

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Speaker 2: the pod before that they don't just impact people who

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Speaker 2: own homes. The impacts also trickle down to people rent

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Speaker 2: and to the economy more broadly. Do these changes mean

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Speaker 2: that relief is imminent?

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Speaker 3: No, No, I'm sorry to say. I think it's pretty

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Speaker 3: definitively no. And that's I think that's actually an important

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Speaker 3: point to make. So this is a big deal again,

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Speaker 3: you know, a real indictment of the culture of the

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Speaker 3: RBA in a way, and some really really big changes

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Speaker 3: to come to the way that it operates. But we

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Speaker 3: should not expect that that is going to mean radically

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Speaker 3: different decisions on interest rates. So, as I sort of

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Speaker 3: mentioned before, every central bank in the world really has

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Speaker 3: been raising interest rates over the last little while. That's

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Speaker 3: pretty uniformly agreed that to fight inflation. You know, at

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Speaker 3: least this review is not challenging that idea. And so

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Speaker 3: if you're expecting some kind of shift towards you know,

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Speaker 3: not using interest rates to fight inflation, well that's certainly

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Speaker 3: not going to happen as a result of this review.

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Speaker 3: That's not to say that it won't affect some decisions,

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Speaker 3: Like when I go back to what we were saying

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Speaker 3: earlier about twenty sixteen and hundreds of thousands of people

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Speaker 3: out of work because interest rates were left too high.

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Speaker 3: I think it is reasonable to expect that, you know,

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Speaker 3: maybe a better culture of debate and stress testing within

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Speaker 3: the RBA might avoid mistakes like that on a slightly

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Speaker 3: smaller level. But you know, in the grand scheme of things,

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Speaker 3: even if you implement it all fifty one of these

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Speaker 3: recommendations two or three years ago, we would still have

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Speaker 3: had a pretty difficult year. And that pretty difficult year

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Speaker 3: is just a reflection of the inflation problem that we face.

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Speaker 3: And so, you know, the review doesn't have anything particularly

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Speaker 3: radical to say about that. But that's not to say

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Speaker 3: that its changes aren't aren't really significant and you know,

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Speaker 3: really interesting as a reflection on the RBA's culture.

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Speaker 2: As always, Tom, thanks so much for coming on the

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Speaker 2: pod and meeting all of this stuff about the economy

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Speaker 2: actually fun.

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Speaker 3: I feel like Nina. Every time I come on the pod,

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Speaker 3: someone finishes by saying, hey, Tom, thanks for coming on

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Speaker 3: to talk about something really boring and at least trying

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Speaker 3: to hope that I hope that you're all still with

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Speaker 3: us listening at home.

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Speaker 2: Thanks so much for joining us on the daily ours.

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Speaker 2: We'll be taking tomorrow off for the public holiday. Hopefully

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Speaker 2: you get a day off two. We'll be back again

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Speaker 2: on Wednesday. See you then,