Reserve Bank of Australia (RBA)

The Reserve Bank of Australia (RBA) is Australia's central bank and derives its functions and powers from the Reserve Bank Act 1959. Its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by setting the cash rate to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system, and issuing the nation's banknotes.

The RBA provides certain banking services as required to the Australian Government and its agencies, and to a number of overseas central banks and official institutions. Additionally, it manages Australia's gold and foreign exchange reserves.

Monetary Policy

The Reserve Bank is responsible for Australia's monetary policy. Monetary policy involves setting the interest rate on overnight loans in the money market (‘the cash rate’). The cash rate influences other interest rates in the economy, affecting the behaviour of borrowers and lenders, economic activity and ultimately the rate of inflation.

In determining monetary policy, the Bank has a duty to maintain price stability, full employment, and the economic prosperity and welfare of the Australian people. To achieve these statutory objectives, the Bank has an ‘inflation target’ and seeks to keep consumer price inflation in the economy to 2–3 per cent, on average, over the medium term. Controlling inflation preserves the value of money and encourages strong and sustainable growth in the economy over the longer term.

Governance

The Reserve Bank of Australia is an independent central bank with responsibility for monetary, financial system and payments system policies, and other financial matters. The Bank has two boards: the Reserve Bank Board, which has responsibility for monetary policy and financial stability and the Bank's policy on other matters excluding payments system policy; and the Payments System Board, which has responsibility for matters relating to payments system policy. This governance structure is set out in the Reserve Bank Act 1959. Subject to those matters, the Bank is managed by the Governor. The Public Governance, Performance and Accountability Act 2013 (PGPA Act) also imposes particular responsibilities on the Governor concerning management of the Bank.

The Reserve Bank Board has an Audit Committee and a Remuneration Committee. The primary objective of the Audit Committee is to report to the Board on matters relevant to the fulfilment of the Bank's statutory financial reporting and other obligations in terms of the Reserve Bank Act and the PGPA Act. The Committee assists the Governor and the Board in fulfilling their obligations relating to financial reporting, risk management and fraud control, and regulatory compliance. The Remuneration Committee makes recommendations to the Board on the remuneration of the Governor and Deputy Governor in terms of the Reserve Bank Act and the framework and guidelines set by the Remuneration Tribunal, and is also kept informed of the general remuneration arrangements for Reserve Bank staff.

Following appointment to the Reserve Bank Board or Payments System Board, each member is required under the Reserve Bank Act to sign a declaration to maintain secrecy in relation to the affairs of the particular Board and the Reserve Bank. Further, by law, members must comply with the general duties of officials of Commonwealth entities, as set out in the PGPA Act. Over and above these requirements, members of each Board have also adopted a Code of Conduct in recognition of their responsibility for maintaining a reputation for integrity and propriety on the part of the Reserve Bank Board, the Payments System Board and the Reserve Bank.

Role of the Reserve Bank Board

The ‘mandate’ or ‘charter’ of the Reserve Bank Board is contained in section 10(2) of the Reserve Bank Act:

...the Reserve Bank Board has power to determine the policy of the Bank in relation to any matter, other than its payments system policy, and to take such action as is necessary to ensure that effect is given by the Bank to the policy so determined. 

It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank under this Act and any other Act, other than the Payment Systems (Regulation) Act 1998 and the Payment Systems and Netting Act 1998, are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:

a.     the stability of the currency of Australia;

b.     the maintenance of full employment in Australia; and

c.     the economic prosperity and welfare of the people of Australia.

The main focus of discussions at the Reserve Bank Board's meetings each month is on monetary policy. This discussion occurs against the background of papers prepared by Reserve Bank staff about developments in the domestic and foreign economies, and in financial markets. These papers are supplemented by staff presentations at each Board meeting.

The relationship of the Reserve Bank Board with the Government is set out in section 11 of the Reserve Bank Act. Thus, the ‘Government is to be informed ... from time to time, of the Bank's monetary and banking policy’. In practice this is done in the regular, generally monthly meetings which the Governor and Deputy Governor have with the Treasurer, shortly after each meeting of the Reserve Bank Board.

The Public Governance, Performance and Accountability Act 2013 specifies that the Governor must prepare an annual report by 15 October, for presentation to the Treasurer and tabling in the Parliament.

The Reserve Bank has an Audit Committee, which generally meets four times each year. Its membership is comprised of two non-executive members of the Reserve Bank Board, Mark Barnaba (Chair) and Allan Moss, and Sandra Birkensleigh and Rahoul Chowdry, both of whom are former senior audit partners with extensive experience in the financial sector. The Reserve Bank Board has a Remuneration Committee, which meets at least twice each year. Its membership is drawn from the non-executive members of the Board.

In addition to the Reserve Bank Board, the Reserve Bank has another board, the Payments System Board, which is responsible for the Reserve Bank's payments system policy.

Meetings of the Reserve Bank Board

The Reserve Bank Board meets eleven times each year, on the first Tuesday of each month, except January. Board meetings are usually held at the Reserve Bank's Head Office in Sydney. Meetings are held in two other Australian cities each year.

Five members form a quorum for a meeting of the Reserve Bank Board, which must be chaired by the Governor or, in his absence, the Deputy Governor. The Reserve Bank Act provides for decisions to be reached by a majority of the votes of the members present and voting, with the Chair having a casting vote, if necessary, in addition to a deliberative vote. Minutes of the monetary policy meetings of the Board are published two weeks after each meeting. The Governor and Deputy Governor do not participate in deliberations of the Board related to the terms and conditions of their employment. Meetings are held in the Boardroom of the Reserve Bank's Head Office in Sydney or a similar facility in one of the Bank's State Offices when meetings are held interstate (a secure location is used in Australian cities where the Bank does not have its own premises). Meetings commence at 9.00 am and generally run for around three and half hours, and conclude with a light lunch to which a guest is usually invited. Meetings held interstate are followed by a dinner with the local community.

Members of the Reserve Bank Board

The Reserve Bank Board comprises nine members: three ex officio members – the Governor (who is Chair), the Deputy Governor (who is Deputy Chair) and the Secretary to the Treasury – and six non-executive members, who are appointed by the Treasurer. The Governor and Deputy Governor are appointed for terms of up to seven years, and are eligible for reappointment. The non-executive members are appointed for terms of up to five years. There is no limit on the number of terms a member may serve. A list of previous and current members of the Reserve Bank Board is also published on this website.

In terms of section 17(1) of the Reserve Bank Act, members of the Board may not be a director, officer or employee of an authorised deposit-taking institution for the purposes of the Banking Act 1959.

 (Source: https://www.rba.gov.au)