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Treasurer Jim Chalmers will announce the first review of the Reserve Bank in 40 years,with the board and inflation target all part of the examination.Credit:Alex Ellinghausen

International monetary policy expert Carolyn Wilkins,a former senior deputy governor of the Bank of Canada who now sits on the Bank of England’s financial policy committee;the interim director of the Crawford School at the Australian National University,Renee Fry-McKibbin;and the secretary for public sector reform Gordon de Brouwer will head the review,which is expected to report back to the treasurer by March.

Chalmers said the RBA had served the country well for more than six decades but the review was aimed at ensuring the country had the world’s “best and most effective” central bank.

“Australia is facing a complex and rapidly changing economic environment,as well as a range of long-term economic challenges,” he said.

“This is an important opportunity to ensure that our monetary policy framework is the best it can be,to make the right calls in the interests of the Australian people and their economy.”

The review followed aseries of articles by this masthead about the RBA’s performance ahead of the COVID-19 pandemic. Academic research has suggested up to 270,000 people spent time out of work ahead of the pandemic because the RBA held interest rates too high.

The bank has also been criticised for rapidly lifting interest rates since May in response to the global outbreak of inflation over recent months. Bank governor Philip Lowe,whose seven-year term is due to end next year,had said as late as November the RBA did not expect to lift interest rates until 2024.

The RBA is the only major central bank in the world not to have undergone an independent review this century. The last time its core operation was examined was as part of the Campbell review that delivered its report to the Fraser government in 1981.

Under the terms of reference,the review panel will examine the RBA’s objectives as set out in the original 1959 act that commits the bank to full employment,stability of the currency and “the economic prosperity and welfare of the people of Australia”.

Former Bank of Canada senior deputy governor Carolyn Wilkins will be a member of the independent review panel examining the RBA.Credit:Bloomberg

The review will also look at the bank’s inflation targeting framework,which was put in place in the early 1990s. This requires the RBA to hold inflation between 2 and 3 per cent over the economic cycle. It has failed to hold inflation in that band for the past seven years.

A criticism from outside the bank has been that its board structure,unlike almost every other major central bank,is drawn from the general community and more than half of its nine members are non-monetary policy experts.

Board members are appointed by the treasurer of the day.

The review will examine the board structure,its experience and expertise,composition and the appointment process. Accountability arrangements,which require the bank’s governor to face a House of Representatives committee twice a year,will also be examined.

The RBA’s overall culture,management and recruitment process will come under scrutiny along with its oversight of so-called macroprudential arrangements,which include measures such as commercial bank lending standards.

The review is expected to consult monetary policy experts from around the world,including former members of the RBA board,as well as the public.

The role of the Australian Prudential Regulation Authority along with the RBA’s payments and banknote functions will not be reviewed.

Greens treasury spokesman Nick McKim said the review had to look at the make-up of the bank’s board,the inflation target band,the cost of housing and whether the bank should control the quantity and quality of credit.

McKim said the bank’s silence on the impact of “corporate profiteering” on inflation should also be examined.

“Any review of the RBA must look at the inflationary effect of profit’s share of national income being at record highs and worker’s share of national income being at record lows.

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