Borrowers could face bigger interest rate moves under central bank plans to cut the number of rate setting meetings from 11 to eight a year as part of an overhaul of the way it sets and communicates monetary policy that will come into effect next year.
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In a change that could leave mortgage holders with higher rates for longer, Reserve Bank of Australia governor Philip Lowe said that, beginning in 2024, the central bank board will meet on the first Tuesday of February, May, August and November as well as four other meetings, with the exact dates to be announced "soon".
The change is among a number of reforms recommended by the federal government's RBA Review that Dr Lowe said will be implemented by the central bank, including making rate setting meetings longer, giving board members pre-meeting access RBA staff and the governor holding a media conference an hour after the 2.30pm announcement of the rate decision.
"Together, these changes are significant and represent a substantial response to the recommendations of the review," Dr Lowe said in a speech to the Economic Society of Australia.
"The less frequent and longer meetings will provide more time for the board to examine issues in detail and to have deeper discussions on monetary policy strategy, alternative policy options and risks, as well as on communication," he said.
"Likewise, the staff will have more time for analysis, with less time spent preparing summaries of recent developments."
But decisions about other far-reaching changes recommended by the review, including publishing board votes, regular public appearances by board members and the appointment of an expert advisory group to advise the board, have been deferred.
In pointed comments directed at criticisms that Reserve Bank officials currently exert too much influence interest rate decisions, Dr Lowe said the RBA board, unlike that of almost every other central bank, was dominated by outsiders, with only two of its nine members being central bank officials.
"The other seven spend the bulk of their time outside the RBA," he said. "[This] model has the advantage of ensuring there is diversity of thought and it helps bring a wider perspective to monetary policy decisions."
The governor backed the current monetary policy framework - an independent central bank with a flexible 2 to 3 per cent inflation target - as "fit for purpose" but admitted that some change was needed.
"As times change, we too need to change," Dr Lowe said.
"The world we face is increasingly complex and it is right to re-examine how we make and communicate monetary policy decisions and how the RBA is managed.
"The board and the bank's staff have supported the review, and we have been working constructively on the recommendations."
The changes outlined by the governor drew broad support among economists.
AMP chief economist Shane Oliver said there was value in having less frequent board meeting because "often there is not much that happens on a monthly cycle and a lot of effort is put in to every meeting".
"It could result in more considered and better quality decisions," Dr Oliver said.
But he admitted longer gaps between meetings could mean borrowers are left with higher rates for longer when the Reserve Bank eventually begins easing monetary policy.
"If we move to less frequent meetings, people might have to wait longer for [interest rate] relief, but you might get bigger movements," the AMP economist said.
Market Economics managing director Stephen Koukoulas said the effect of such delays were unlikely to be significant.
Mr Koukoulas backed the move to fewer rate setting meetnigs, noting that the eight board meetings appeared timed to capitalise on the release of major economic data, each coming around 10 days after key quarterly inflation or growth figures would be published.
meant that less frequent and possibly larger rate moves, including possibly
In a warning to borrowers, the central bank boss also warned that interest rates may yet go higher.
"It is possible that some further tightening will be required to return inflation to target within a reasonable timeframe. Whether or not this is required will depend on how the economy and inflation evolve," Dr Lowe said.
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In a significant update on the RBA's current practice in setting monetary policy, Dr Lowe said that from 2024, each board meeting will be followed by a media conference to be held by the governor.
The RBA governor said the
Meanwhile, as speculation over the future of Dr Lowe intensifies, Treasurer Jim Chalmers said he has been consulting about the Reserve Bank position, including with opposition treasury spokesman Angus Taylor and would present a proposal to his cabinet colleagues.
"This is one of the most important appointments that the government will make. It's a big call," the Treasurer said.
Dr Lowe's seven-year term ends in September and there have been loud calls for the government not to extend his term and instead appoint a replacement.
The governor's comments came as data indicated the nation's housing crisis was intensifying.
Work on new houses dropped 5.5 per cent in the March quarter to be down almost 16 per cent from a year earlier.
While there has been an 11.8 increase in apartment and unit commencements over the same period, this has not been enough to stem the nation's under-supply problem.
Australian Bureau of Statistics figures show that, overall, 46,546 dwellings were under construction in the first three months, down 6.6 per cent from the same period in 2022, underlining concerns that the supply of new homes is falling short of current and future demand.
