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(Bloomberg) — Australian Treasurer Jim Chalmers announced the terms of a wide-ranging review of the Reserve Bank amid mounting criticism over its economic forecasting and recent policy decisions.

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A three-person panel, including a former senior Bank of Canada official, will conduct the review, Chalmers said Wednesday. In a speech shortly after, RBA Governor Philip Lowe welcomed the announcement and also signaled a steady series of interest-rate rises as he seeks a soft landing for the economy.

The RBA came under fierce criticism after it was forced into a U-turn three months ago when soaring inflation shredded its dovish policy stance. Less than a week later, the bank began hiking rates, having only a few months earlier predicted borrowing costs were unlikely to rise before 2024.

Those moves came on the heels of its abrupt abandonment of a bond yield target in the face of market pressure and doubts over its sustainability. Lowe has conceded RBA forecasting has been “embarrassing” and acknowledges reputational damage from the “disorderly” exit from yield control.

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The timing of the first review since the RBA gained formal independence in the 1990s therefore comes with the bank and its governor on the defensive. While central bank governors around the globe have faced awkward moments while pivoting on policy, Lowe has overseen one of the messier shifts from pandemic-era support to rate liftoff.

That leaves him in a weakened position to push back against any moves to change up areas like the bank’s board structure. As Chalmers unveiled the review, he also announced a 12-month extension of one of the six independent RBA directors to cover the review period, rather than the usual five years.

The final report and recommendations, due by March 2023, will also come just six months before Lowe’s seven-year term expires. 

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Past inquiries at the Federal Reserve and the European Central Bank explored their approaches to inflation, resulting in more scope for them to allow prices to run beyond targets. Australia currently operates a flexible inflation target that aims to keep consumer-price gains between 2-3% over time.

Lowe, in his speech, said the review’s terms of reference were appropriate and reiterated his observation that central bank inquiries overseas had recommended more flexible inflation targets similar to the one Australia operates.

“The outlines of the review encompassing its governance, culture and recruitment processes are quite broad, and certainly broader than the recent reviews undertaken at the Fed and the ECB,” said Alvin Tan, the head of Asia currency strategy at RBC Capital Markets in Singapore. 

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“The outcome of the exercise could be more important on the governance and culture aspects rather than the inflation goal.”

The governor said Wednesday that policy makers need to chart a credible path back to 2-3% inflation that keeps the economy expanding and unemployment low, a comment that suggested he would avoid a growth-damaging rush back to its targeted price growth range.

“It is certainly possible to do this, but the path ahead is a narrow one and it is clouded in uncertainty,” Lowe said in Melbourne.

In a rare discussion of the neutral rate, he said the RBA estimates its level is at least 2.5%. The governor said the bank is “steadily increasing” its cash rate and at some point will probably get to at least that neutral level, with the pace of hikes to be determined by the inflation outlook.

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Lowe also reflected on the pandemic-era stimulus delivered by the central bank, acknowledging that the RBA might have taken out “too much insurance.” He said the policy support had contributed to inflationary pressures in the economy now.

“Understandably, judgments will differ as to whether we over-insured or not,” he said. “But in the highly uncertain environment of the time, the right policy choice was to err on the side of too much insurance, rather than too little.” 

The review will consider the RBA’s objectives, mandate, the interaction between monetary, fiscal and macroprudential policy, its governance, culture, operations, and more, Treasurer Chalmers said.

The RBA has in the past been criticized for insularity. Since its formal independence in 1996, every governor has been a staff member. The lack of policy expertise among six independent board members primarily drawn from business has also drawn fire. 

(Updates with economist comment, more details from Lowe speech)