As interest rates rise, much of the blame is lumped on Phillip Lowe. But contrary to popular belief, the Reserve Bank Governor does not make decisions all by himself. Callum Foote looks at the central bank’s board stacked with Liberal appointments from business and conservative think tanks.
Phillip Lowe made the point in his appearance before the Senate Economics Committee this week that “it’s not just me, I find sometimes that it’s all shed down to me, which is a bit unfair because it’s the board. There are nine of us who make these decisions and we take them collectively.”
On the board, alongside the Governor, there is the Deputy Governor (Michele Bullock), the Secretary to the Treasury (Steven Kennedy), and six private sector board members who were appointed by the previous two treasurers, Josh Frydenberg and Scott Morrison.
The six private members reveal a tight-knit web of people from the business sector, the Liberal Party and conservative think tanks, and not a lot in the way of central banking, monetary policy or economics credentials.
Board members are appointed by the Treasurer. Each of the six private board members was appointed between 2016 and 2020 under Scott Morrison and Josh Frydenberg.
Before we get to these appointments it is fair to make the point that inflation is a global thing and the RBA has hiked rates less than other central banks.
US and Canadian central banks have hiked official rates by more than ⅓ higher than RBA
but there is a difference:
╰┈➤ most US household mortgages are 30 years (fixed) and costly to get out of on moving house
= new buyers (and credit card borrowers) are affected in US pic.twitter.com/uOjFe6rOwS
— 13foot7 (@13foot7) February 15, 2023
If the RBA does not lift rates enough to tackle inflation, the longer term cost to Australians will be severe. Managing interest rates is a mighty juggling act.
is #RBA actually too gentle ?
🇺🇸 @federalreserve policy rate
★ now *higher (4.6%) than core inflation (4.4%)
🇦🇺 #RBA policy rate (Cash Rate)
✩ still *lower (3.35%) than core inflation (6.9%)
Aust: inflation 1 Mar, int rates 7 Mar
US: core 24 Feb, int rates 22 Mar pic.twitter.com/kzUB4qFCG0
— 13foot7 (@13foot7) February 16, 2023
The question is, is the RBA board experienced enough? Unlike in the UK and the US, the RBA’s board has potentially inexperienced political appointees who can outvote experienced experts on monetary policy.
The Bank of England has the Monetary Policy Committee (MPC) whose nine expert members decide what monetary policy action to take. Each member of the MPC must have expertise in the field of economics and monetary policy with only four of the nine being appointed by the Chancellor, the UK’s version of our Treasurer.
The US’s Federal Reserve has the Federal Open Market Committee (FOMC) which has twelve members: The seven members of the Board of Governors of the Federal Reserve System, the president of the Federal Reserve Bank of New York, and four of the remaining eleven Reserve Bank presidents, who serve one-year terms on a rotating basis.
These are structures put in place to ensure that each individual voting on monetary policy is likely to be an expert or have extensive experience in the field.
Role of the board
Who decides in Australia?
The six private sector board members are appointed for terms of up to five years, but there is no limit to the number of terms a member can be appointed for.
Mark Barnaba was appointed in August 2017 by Scott Morrison and has a term finish date of August this year. His day-job is being deputy chair and the lead independent director of Fortescue Metals Group, Andrew “Twiggy” Forrest’s billion-dollar iron mining operation.
Barnaba is also the chair of the online LNG exchange GLX Digital. GLX was founded by Damien Criddle, who also serves as its Chief Executive Officer. Criddle is a former senior counsel for Shell and Woodside.
Barnaba, alongside another RBA board member, is also a board member of the Centre for Independent Studies (CIS). CIS is a right-wing libertarian think tank based in Canberra. Adding his roles as a senior fellow at the accounting firm EY Oceana and a senior advisory board member for mining private equity firm Appian Capital Advisory, makes Mark Barnaba a very busy man.
Wendy Craik is an Australian scientist, public policy adviser and company director has been a board member since Frydenberg appointed her in May 2018 and has a term until May this year.
Craik is a former scientist for the federal Department of the Environment, and a former executive director of the National Farmers Federation.
She now sits as chair of the CSIRO’s Oceans and Atmosphere Advisory Board, One Basin CRC which is a partly industry funded research institute dedicated to finding technical solutions to climate risks in the Murray-Darling Basin.
Craik is also a member of the advisory board for the Centre for Strategy and Governance, a non-for-profit network of former senior executives within the Australian Public Service, and a member of the advisory board for the Public Leadership Research Group within the Howard Library at UNSW Canberra, Australia’s first and only public Australian Prime Ministerial library.
Ian Harper is an economist and current dean of the Melbourne Business School. Harper began his career working at the Reserve Bank before becoming a partner at accounting firm Deloitte in Melbourne.
He is a director at the liberal-backed Robert Menzies Institute. The institute boasts conservative commentator Peta Credlin and the chairman of right-wing think tank the Institute of Public Affairs, Geoff Hone, as board members.
Carolyn Hewson has been a member since March 2021, appointed by Frydenberg, and has a term that expires in March 2026.
Hewson is a former investment banker with over 35 years’ experience in the finance sector. She is one of two directors of the Australian pharmaceutical company CSL Limited on the RBA board.
Hewson’s resume is impressive and extensive, with links to many of the largest companies operating in Australia being a former Director of BHP Group, Stockland Group, BT Investment Management Limited, Westpac Banking Corporation, AGL Energy Limited, the Australian Gas Light Company, CSR Limited, AMP Limited, South Australian Water and the Economic Development Board of South Australia.
Her ex-husband, John Hewson, served as leader of the Liberal Party from 1990 to 1994.
Carol Schwartz has been a member since February 2017 and has a current term till February 2027.
Schwarts is an Australian business executive, community leader and philanthropist. She is the chair of the Women’s Leadership Institute Australia and financial services firm Equity Trustees.
Born Carol Judith Besen in Melbourne, she is the daughter of billionaire founders of fashion retailer Sussan, Marc and Eva Besen. Marc Besen, was a staunch supporter of the Liberal Party during the 2019 federal election, donating $132,000 in various transactions to the Liberal war chest.
Alison Watkins was appointed in December 2020 for a five-year term.
She is the chancellor of the University of Tasmania, director at Wesfarmers, while also being the second director among the RBA board members of CSL Limited (with Carolyn Hewson) and of the Centre for Independent Studies (with Mark Barnaba).
Watkins’s previous roles include Group Managing Director of Coca-Cola Amatil, Chief Executive Officer of GrainCorp Limited and Berri Limited, as well as ANZ’s Group General Manager and McKinsey partner.
She has also been a non-executive director at the Business Council of Australia.
Her husband, Rod Watkins, worked closely with Malcolm Turnbull at Ozemail.
How do they vote?
We can only assume that the board is well guided by the Governor and the advice provided to them, but we don’t know how they vote.
Governor Lowe is hesitant to release the voting records of his private members on his board. Lowe said in September last year that disclosing the monetary policy votes of individual board members could lead to outside lobbying on interest rates and make it harder for directors to act in the national interest.
Given the tight-knit group of business people on the board, and the absence of anyone from, say, unions, academia and social services, to name a few sectors that would take an interest in RBA’s decisions, outside lobbying may not be what he should really worry about. Alone or not.