Australia Parliament
Economic pundits predicted that RBA is unlikely to cut rates when its board meets on Tuesday. Pixabay

The Labor government's plan to reform the Reserve Bank of Australia (RBA) faced another setback on Monday when the Greens refused to support the reform bill until Treasurer Jim Chalmers exercised his power to lower the interest rate.

"The Reserve Bank should lower interest rates tomorrow and if they don't, the Treasurer should use his existing powers to bring down interest rates and relieve pressure on mortgage holders," Reuters quoted the Greens as saying.

The RBA reforms were recommended by an independent review last year that included setting up separate boards to manage governance apart from the existing monetary policy board. This second board would oversee internal structures and performances, so that the monetary board could focus solely on interest rates and the economy.

The rate-setting board would have nine members, with six of them being outsiders.

Two weeks ago, the Liberal opposition opposed the reform bill, citing the Labor would have the option of appointing members, who sided with them, to the rate-setting board. The Treasurer expected the Greens and independent members to support the reform bill in Parliament.

Last month, Chalmers had attempted negotiation with the Coalition, when he assured the opposition that he would not replace the existing members of the monetary policy board.

The passing of the bill now seems unlikely, considering the demand by the Greens on Monday.

The party's economic justice spokesman Nick McKim demanded that the treasurer use his legislative power to order rate cuts by Tuesday, ABC News reported.

"We're not prepared to support the legislation in present form until Chalmers or the RBA cuts rates," McKim said.

Earlier this month, the Greens signaled its support for the bill if Labor retained Sections 11 and 36 of the Reserve Bank Act, which allowed the treasurer to overturn RBA's decisions and the government could demand how the commercial banks placed the funds generated during emergency quantitative easing, respectively.

However, Chalmers had proposed to remove the veto power, though later he stated to use the power in special circumstances, while maintaining that RBA should remain independent.

Finance Minister Katy Gallagher called the Greens' proposal "economically irresponsible."

"I think the Greens are out of control at the moment and they're just trying to be populist but can cause a lot of damage at the same time," she told ABC's News Breakfast Monday. "There are good reasons why the Bank is independent and the interest rate setting is independent of the political process. It has served our country well."

Meanwhile, economic pundits predicted that the RBA is unlikely to cut rates when its board meets on Tuesday. The board has kept the interest rates unchanged at 4.35% since last November due to persistent inflation.

Australia's current inflation rate is above the board's target range of 2-3%.