The Reserve Bank of Australia (RBA) should meet less frequently and decisions on interest rates should be made by a new board including external experts, a review has found.
Governor Philip Lowe described the review, which signified the start of the biggest shake-up the bank will have seen in almost 30 years, as "kind of excellent".
The review recommended that a new monetary policy board, filled with finance experts, be appointed to determine interest rate policy.
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The review also recommends the board meet eight times a year instead of 11, easing the pressure on households facing repeated rate rises.
The government has in principle agreed to all 51 of the review's recommendations.
"This review, its recommendations and our response is all about ensuring that the Reserve Bank is as strong and effective as it can be, now and into the future as well," Treasurer Jim Chalmers said this morning.
"This is about learning from the past to strengthen the Reserve Bank in the future."
While the treasurer would not be drawn on whether he will reappoint Philip Lowe when his term expires in September, the governor said he would stay in the role if offered.
"It is a great honour and it is a great privilege to have the job that I have, and I would also say it is a great responsibility," he said.
"If I was asked to continue, I would. If I'm not asked to continue I will find another way to contribute to Australian society."
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While welcoming the review, Lowe said he disagreed with the finding that the board isn't able to challenge RBA views.
"They're probing, they challenge me and sometimes I speak last in the meeting," Lowe said.
"The idea that the board members sit there meekly and accept the recommendation that I put to them is very far from the reality that I've lived as the governor."
Chalmers thanked the opposition for their engagement with the review.
"We have said from the beginning that we want to see changes to the Reserve Bank made in a bipartisan way if we can," he said.
"These are not ideological changes, these are considered proposals and recommendations."
He made special mention of Shadow Treasurer Angus Taylor.
"Angus and I have our differences of over a range of policy areas but he has engaged in this process in a considered way and in a cooperative way," he said.
Taylor, for his part, praised the review and thanked the government for being given the opportunity to talk to the panel and the treasurer's office.
"It is critical that the lessons from the past are learned," he said.
"I think this review does a very good job of going through recent history and some of the lessons that need to be learned and the work that needs to be done and some of the initiatives that need to be implemented."
He said the opposition will review all the recommendations in the coming weeks and days.
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Chalmers named Iain Ross and Elana Rubin to serve as new members of the RBA board.
Ross previously led the Fair Work Commission and has worked as a private lawyer and worker advocate.
Rubin has a deep resume working on boards of AustralianSuper, Telstra, Afterpay and Slater & Gordon, among others. She also previously worked for the ACTU.
The RBA and Lowe said in a statement they welcomed the review.
"The Review makes a number of recommendations regarding how the Board works, including the frequency of meetings and the Bank's approach to communication," the statement read.
"The Board will consider these issues over coming meetings and develop and implement a new set of arrangements."
The RBA said it would also work to implement other changes, including the appointment of a chief operating officer, in "the most effective way".
"The recommended changes will … strengthen the Bank's governance and decision-making processes," Lowe said.
"They will help us deal with the complex world in which we operate as we strive to promote the economic welfare of the Australian people."
Chalmers would not be drawn on whether Lowe would be reappointed as Governor of the Reserve Bank later this year.
"The appointment is in September," he said.
"In the ordinary course of events the Government would turn its mind to that appointment closer to the middle of the year and that is my intention."
Deloitte Access Economics partner Chris Richardson said the key for Australians was that the bank would be explaining its decisions more – and without resorting to "jargon".
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"The Reserve Bank has never been more important to Australia. We have never borrowed more. Its decisions have never been more vital," he told Today.
"So if they are talking more to us, that's great. And we will have people with greater experience on interest rates helping the bank decide on interest rates."
He said the incoming changes would being the bank into the "modern day" and in line with the rest of the world.
"Australians need to understand what the Reserve Bank is thinking," he said.
"We are going to see moves in that direction."
The shift to hand control of interest rates to a committee of monetary experts would bring Australia in line with the operation of central banks in other countries such as the UK and Canada.
The review was announced last year amid the recent string of rapid interest rate rises — following record lows during the pandemic — which began just a year after Lowe told Australians rates would stay low until "at least 2024".
He's since apologised for the "embarrassing" error.
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It also followed criticism of the way the bank was operating before COVID-19 battered the world's economies.
Professor Carolyn Wilkins, an external member of the Financial Policy Committee of the Bank of England; Professor Renee Fry-McKibbin, the interim director of the Crawford School of Public Policy at the Australian National University; and former treasury and RBA expert Dr Gordon de Brouwer have spent months going over more than 1500 interviews, submissions, focus groups and survey responses.
They consulted 137 experts in Australia and overseas, as well as business, union and community representatives.
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He said some recommendations would require legislative change, while others would need the reserve bank governor and board to make changes.
"There's a role for government, there's a role for the Reserve Bank and its board," he said
"There's a role in the [bank's monetary policy] statement, there's a role for legislation and one of the key reasons why I want it to be bipartisan if we can is because ideally we'd get all those ducks in a row.
"And in the absence of bipartisanship, we don't really want to run the gauntlet in the Senate, for example, on legislative change to the RBA Act. The RBA Act should be something that we can agree on and put beyond politics"
Taylor said it was "essential" the recommendations were agreeable to both parties.
"This will ensure certainty around the outcome of this review," he told the Sydney Morning Herald.
"With inflation at its highest level in decades, this in the best interests of Australians."
Recent rate hikes have been aimed at keeping soaring inflation, sparked in part by rising energy prices, supply chain issues and the war in Ukraine, under control.
Currently the cash rate target of 3.6 per cent is the highest since May 2012, after the RBA paused increases earlier this month following 10 consecutive hikes.
Chalmers should on Thursday also announce the appointment of two new RBA board members to replace outgoing members Wendy Craik and Mark Barnaba.
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