The Reserve Bank is toying with the idea of simply voting on changes to monetary policy instead of first having to try to seek a consensus, acknowledging a danger of “groupthink” on the committee that makes those decisions.
However, it appears to be minded towards maintaining the status quo.
The bank’s decisions, and the way it reaches them, have both come under growing scrutiny in the wake of ongoing criticism that it was too slow to dampen inflation pressures last year and could now be overcompensating by engineering a recession.
Its current charter requires the seven members of its monetary policy committee (MPC), including its three external members, to a seek a consensus on decisions such as whether and by how much to raise or lower the official cash rate, and to hold an anonymous vote if a consensus can’t be reached.
Former Reserve Bank assistant governor John McDermott last week queried how the committee has always managed to reach a consensus since it was established in 2019, despite being faced with huge economic uncertainties.
The bank kicked off a second round of public consultations on its remit on Wednesday and noted in a discussion document that its decision-making practice was unusual among its major peers.
Voting was more common than consensus-based decision-making among similar central banks, and of those that did hold votes, most published details of who voted which way, it said.
The bank said in its discussion document that its emphasis on seeking a consensus could “reduce the benefits associated with having a diverse committee”.
It also said there was a further risk of its chairperson, currently governor Adrian Orr, or other members of the committee being “overly dominant when using a consensus-based model”.
But it said the latter challenge could still be there if votes were taken, and that the committee’s processes had been set up to “reduce the risk of ‘groupthink’ developing”.
The bank appeared to come out against change, stating that neither a consensus nor a vote-centric approach would consistently deliver better decisions than the other and that there was “no strong evidence supporting a move away from the consensus-based decision-making model”.