Accordig to Gross,the Reserve Bank isunusual among the world’s central banks as its board oversees both the day-to-day operation of the institution as well as the setting of monetary policy.
Gross said the board,of which six of its nine members are appointed by the treasurer of the day,should continue to oversee the bank but a separate monetary policy committee of experts should set interest rates.
This would bring it into line with central banks such as those in New Zealand,England and Canada.
The committee would include five RBA economists plus four outside experts. The votes and reasoning of committee members would be made public after meetings,which would be reduced from 11 to eight a year.
The RBA’s charter commits the bank to control inflation,full employment and policies which promote “the economic prosperity and welfare of the people of Australia”.
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A criticism of the bank has been in its failure to hold inflation in its 2-3 per cent target band. It has been under and above the band for almost all of the past seven years.
Gross said the RBA should commit to get inflation to the midpoint of its target band within two years. If it does not,then the bank would have to make public why it has failed to hit its target.
Last week,new Reserve Bank forecasts for the next two years fail to show inflation reaching its target.
The bank also,along with APRA,has responsibility for the stability of the nation’s financial system.
Macroprudential regulations,such as requirements on interest rate buffers or how much of a commercial bank’s lending can flow to housing investors,have been used in recent years to prevent overheating in the housing market which could destabilise the banking sector.
Gross said the RBA should take control of macroprudential regulations and use those,rather than interest rates,to deal with issues such as an overly hot property market.
He said financial stability should be subordinate to the RBA’s efforts to keep inflation steady and have the economy growing fast enough that the country has full employment.
“The welfare of the Australian people would be improved by removing financial stability from the RBA’s mandate for monetary policy,leaving it to focus on the dual goals of a low and stable rate of inflation and the maintenance of full employment,” he said.
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This week,the Australian Greens used its submission to the RBA inquiry to call for the bank to have an objective of maintaining a stable ecology and climate to its objectives. It also backed moving banking regulation moved from APRA to the bank and union representation on the RBA board.
This year,the US central bank has become embroiled in controversy after some of its members were revealed to hold shares and government bond holdings that could be influenced by bank decisions.
Gross said to avoid such a scandal here,senior RBA staff should be barred from holding individuals shares and bonds.
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