20 July 2022


The Hon Jim Chalmers MP

E&OE Transcript


PATRICIA KARVELAS, HOST: The RBA's approach to inflation will be put under the microscope in the first major review of the central bank since the 1990s. The review will be conducted by the Former Deputy Governor of the Bank of Canada, Carolyn Wilkins, Director of the Crawford School at the ANU, Renée Fry-McKibbin, and the Secretary for Public Sector Reform, Gordon de Brouwer. It will also examine the bank's governance structure, appointments process, and accountability measures. Jim Chalmers is the Federal Treasurer and he joins us now. Welcome to the program, Treasurer.

JIM CHALMERS, TREASURER: Thanks, Patricia. Not everybody can get JLo and a review of the Reserve Bank into the same half an hour, but you've managed it.

KARVELAS: I know, Jim Chalmers, it is an accomplishment I'm proud of. This is the first major review of the RBA in many, many decades. What do you want it to deliver?

CHALMERS: Well, I think the Reserve Bank has been a really crucial institution for Australia and it's served us well for more than six decades in its current incarnation. But we face a really complex and changing economic environment. We've got a range of long term economic challenges and now is the right time to ensure that we've got the world's best, the most effective central bank that we can have into the future so that they can make the right decisions on behalf of the Australian people.

It's been a really long time since there's been a broad ranging review of the bank certainly not since the current regime was set up in the 1990s and so I've been working with the bank, with Governor Phil Lowe, for whom I have a lot of respect, to come to an agreement on the announcement that we'll make today about the...not just the panel that you've run through but also the terms-of-reference and the reporting date, which will be March next year.

KARVELAS: So, it all has to happen by March, which is tightish to look at such a big review. You've said this review is about making sure Australia has the best and most effective central bank. Do you think that's what we have right now?

CHALMERS: Oh, we've certainly got a quality institution full of quality people, and I pay tribute to them. It has been a really difficult policymaking environment for not just the Reserve Bank in Australia but for central banks right around the world. I caught up with a number of central bank governors at the G20 meeting over the weekend in Indonesia. It's not an easy time to set monetary policy. And our job as the government or one of our jobs as the government is to make sure that we give our central bank in Australia the best set of arrangements, the best kind of board, the best governance, the best objectives, the best mandate so that they can make the right decisions into the future.

No central bank has got everything absolutely bang on. No government has got everything absolutely bang on. But we want to make sure that the institutional arrangements are right and we also want to play our part in this difficult economic environment, and that means recognising that there's an important job for monetary policy, for interest rates, but there's also a job for government. Because a big part of this problem is on the supply side of the economy and a big part of our economic plan is to try and unclog some of those supply chains, untangle some of those supply chains, which are also pushing up inflation.

KARVELAS: Now, how did you select the panel of people who will be conducting the review? And was it a deliberate choice to have a majority of women?

CHALMERS: It was, Patricia. But it was also... I made a list of the three people I really wanted and these were the three first choices that I had. I'm absolutely delighted. Carolyn Wilkins is a person of immense achievement in central banking across two continents, well regarded around the world. Renée Fry-McKibbin is one of Australia's leading economists in this area. And Gordon de Brouwer has got a long period of experience at the Reserve Bank, the Treasury, at the G20, and also running government departments. And so it's the best possible combination.

You know, when you put together a panel like this, you have a list of the people you really want and maybe some fallbacks, and these were the first three people that we asked. It is the ideal combination to do this task. And I'm really pleased that a majority of the panel are women. I'm pleased that the majority of the Reserve Bank Board are women as well, and I can't take credit for that. But there's an issue in economics more broadly when it comes to women's participation in the profession, and so anything that I can do to help rectify that over time, I'm going to try and do.

KARVELAS: A very important point. One of them, as you mentioned, is Carolyn Wilkins, Former Deputy Governor of the Bank of Canada, which also has an inflation target. You've said this review will take other central bank reviews into account. What can Australia learn from Canada?

CHALMERS: I think that there are different regimes, including the Canadian regime has got inflation targeting. Our version of inflation targeting is, of course, that two per cent to three per cent range, flexible range. And people have got a lot of views about that, not just around the world but around the country. There's certainly already been some very welcome feedback and input when it comes to our inflation targeting regime. I'm trying to go into this review with an open mind. I'm not aware yet of a better, more appropriate regime for Australia, but that's the whole point of the review. And if they can learn from the Canadian experience of inflation targeting, if they can learn from the experience of other Central Banks around the world, I think that's a good thing. What we would like to do is make the Reserve Bank of Australia the best central bank in the world, and that means picking up and adapting and adopting world's best practice.

KARVELAS: Academic research has suggested it could be up to, what, 270,000 people who have spent time out of work before the pandemic because the RBA held interest rates too high. Do you think the RBA has got those things wrong?

CHALMERS: As you know, Patricia, I'm not interested in second guessing the Reserve Bank. The Reserve Bank is independent, takes its decisions independent of government. And what I've tried to do, and what I have done, is avoided making commentary and second guessing decisions that the Reserve Bank has made. Other people can do that and the Reserve Bank is certainly qualified and competent enough to explain and defend their own decisions. And Governor Phil Lowe, I think, has done a heap of that in recent months, in particular.

My job is to do my bit of it, which is to deal with those supply side issues and make sure that we're not adding to the problem in the Budget when it comes to inflation, but also to give the bank the best set of arrangements so that they can carry on their task independently and come to the best possible decisions based on the economic environment that they confront as they meet each month.

KARVELAS: More than half of the RBA's nine members are non monetary policy experts. Do you think that's played a role in the bank's repeated failure to meet its inflation targets or anticipate the need for interest rate rises?

CHALMERS: Well, there are different models and you want a good mix of people. There are certainly some terrific contributors on the board right now. But one of the things that I do want the review to look at is the breadth and depth of the expertise and experience that's on the board, not as an exercise in, kind of, critiquing board members current or previous, but to make sure that we get the best mix into the future. There will be appointments that we will be asked to make to the Reserve Bank Board in this term of the Parliament and I'd like to do that based on the best advice, on the best mix of people on the board. There are good people on the board right now but if there are ways that we can make it the experience and expertise on the board deeper and broader, then we should look for ways to do that.

KARVELAS: We're coming up to the news, but I just have to ask, in a speech yesterday the RBA Deputy Governor, Michele Bullock, says the bank believes “highly indebted households can withstand substantial interest rate rises as long as unemployment stays low”. Do you share that view?

CHALMERS: Oh, it's a mixed bag. It depends how marginal you are in your home loan, it depends on your wages, it depends on your other financial circumstances. Certainly, some people have been able to build a buffer in their mortgages, but not everybody. And so these rate rises, which are designed to take some of the pace out of demand in the economy, they will do that and that will impact on some people harder than others. These interest rate rises are very difficult for people to accommodate in their household budgets at the same time as they're dealing with the skyrocketing costs of petrol and groceries and electricity and other essentials. And so I don't underestimate the impact...


CHALMERS: …that these rate rises are having on people around Australia.

KARVELAS: Thank you so much, Treasurer. And that is Jim Chalmers, the Federal Treasurer, on AM.