‘One very big mistake’: Economist Ross Garnaut gives his verdict on Reserve Bank’s actions

Peter Tulip, who worked at the Reserve Bank for nine years, said there was a lack of internal and external scrutiny of the bank and called for new leadership. Governor Philip Lowe’s seven-year term ends this year.

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“A big theme of the review is problems with the RBA’s culture; that it’s insular, hostile to criticism, incurious, hierarchical,” said Tulip, now chief economist for the Centre for Independent Studies. “Ultimately, this [change] is going to have to be driven by leadership and, in my view, I don’t think the leadership that ran the bank that was responsible for all the problems documented in the review has the commitment to the cultural change needed, so we need new leadership at the bank.”

Stephen Anthony, chief executive of Macroeconomics Advisory, said an explosion in government bond buying by the Reserve Bank had supercharged inflation. “If governments had been asked to fund their budgets through the market during the pandemic, we wouldn’t be in as bad an inflationary environment as we currently are in,” he said.

Garnaut said the central bank created unnecessarily high unemployment and weak wages growth last decade by keeping the official cash rate higher than in similar countries, and he urged it to work more closely with the federal government, including conducting joint research.

“In terms of the welfare of the Australian citizen, they made one very big mistake, and that is between 2013 and 2019 holding interest rates significantly higher than other developed countries. As a result, we had considerable unnecessary unemployment,” he said. “There needs to be explicit recognition that it is the combination of fiscal and monetary spending together that determines whether we have full employment and low inflation and the right amount of debt.”

The University of Melbourne panel was attended by former competition watchdog boss Allan Fels, former Grattan Institute chief executive John Daley and former federal minister Craig Emerson.

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