An independent review into the Reserve Bank of Australia is at risk of becoming a political football to point blame for the ongoing cost-of-living crisis.
Despite an existing agreement to keep the review bipartisan, the first major inquiry into the central bank in two decades, could be at risk of seeing its mandate watered down if recommendations seek to change legislation.
Treasurer Jim Chalmers announced the review in July, tasking a panel of three independent experts to examine the effectiveness of the bank's existing monetary policy regime and whether it would be able to respond to future economic risks.
The review is partly in response to measures taken during the pandemic which saw the RBA cut the cash rate to 0.1 per cent to try and inject more liquidity into the economy and cushion the financial blow from lockdowns.
Dr Chalmers has defended a bipartisan approach to the review.
"The review is all about making sure our monetary policy framework is the best it can be and delivers in the interests of the Australian people and their economy," he said in a statement.
"I'm particularly pleased the review will be led by a panel of three world-class experts from Australia and overseas, who are all independent of the RBA and outside of the Treasury."
But a number of economists and politicians have expressed concern the bank could be used as a punching bag for worsening economic conditions.
Shadow treasurer Angus Taylor told ACM, retaining the bank's strong inflation targeting mandate and independence remained core to its support of the review.
Mr Taylor has already hit out at Prime Minister Anthony Albanese for "overreach" in comments relating to rising interest rates due to inflation.
"We've had commentators commentating on the RBA's real time decisions in the past and giving them unsolicited advice and I don't think it's helpful," he said.
The shadow treasurer noted the core objective of any good central bank is inflation targeting and a new mandate should not encompass too many other variables, such as climate risk.
Risks he believes should be left more to fiscal management and the prudential regulator.
"We don't want to see that diluted and we don't want other distractions," he said.
"The Reserve Bank's job is to manage inflation and make sure it's balanced with broader stronger outcomes.
"There's lots of other agencies that can do lots of other work."
The Greens have also weighed in on recent interest rate decisions made by the RBA, calling for a cap to rate rises to combat cost of living pressures.
In a statement this week, Greens senator Nick McKim said raising rates was the "wrong medicine" and claimed and should hit pause on further hikes.
The RBA invoked rate rises in response to surging inflation which Treasury expects to hit 7.75 per cent by the end of the December quarter.
Inflation has primarily been fuelled by supply disruptions caused by COVID-19 and the war in Ukraine sending price shocks through commodity markets such as oil.
Senator McKim and the Greens are using the RBA's rate rises to angle tax changes on large corporations.
"The RBA needs to hit pause," he said.
"Inflation is being driven by supply-side shocks and corporate profiteering."
Mr Taylor labelled the Greens' argument as counterfactual, adding it followed similar economic logic to Clive Palmer's election campaign promise to cap mortgage rates at 3 per cent.
"I'm a great believer in free and open debate, but that doesn't make some comments irresponsible," he said.
Senator McKim also agreed the conversation should be based in fact and confirmed the Greens would be seeking to place a submission into the review.
The Greens are seeking a better establishment of climate risks within the mandate and better directives on the flow of credit to boost productivity.
"Our view is that the RBA needs to have a framework for when and how they direct the flow of credit to make sure that some of that is directed to productive purposes," he told ACM.
"Monetary policy helps shape what our economy looks like and preventing or mitigating against climate change in in my view should be a duty."
Mr Taylor did note the review should scrutinise the bank's recent miscommunication over interest rate guidance, but acknowledged economic forecasting is "notoriously hard".
ANU economist Warwick McKibbin flagged counterfactual arguments could jeopardise the bank's credibility and independence.
"You can't take politics out of this, but you have to minimise the disruptive nature of it," Professor McKibbin said.
"We have so many historical experiences where the central bank hasn't been independent and you end up with an economy that's dysfunctional."
The professor is confident the Treasurer would avoid seeking legislative changes to the act through Parliament.
It is understood changes to the mandate would not require legislative amendments.
The Coalition, if it had remained in government had also committed to a review of the RBA.
Economist Saul Eslake remains sceptical the opposition would stay bipartisan if it saw an opportunity for political point scoring.
"I'm not sure I have a lot of confidence in either Angus Taylor or Jane Hume's willingness not to play partisan politics over this, if they saw an opportunity," Mr Eslake said.
Mr Taylor did note he didn't want to see the review used as a real-time commentary on the RBA's performance, lamenting its core focus should be looking at the structural issues.
Labor not a having majority in the Senate could pose issues for reform if the central bank's scrutiny process becomes a point of contention across the political divide.
Possible reforms to the act would need support from either the Coalition, the Greens and the crossbench.
It remains highly speculative that recommendations would seek legislative amendments.
But Treasurer Chalmers has said this is a "wide ranging" review, with the panel expected to examine the appropriateness of the existing RBA laws.
The panel of three independent experts will have until March next year to hand their findings to Dr Chalmers, with the Treasurer possibly seeking to impose changes that could reshape the bank for the next two decades.
Send a letter to the editor