The Greens are demanding the government intervene to cut interest rates in exchange for their support on the Reserve Bank bill, an unprecedented condition that impedes Treasurer Jim Chalmers' effort to land his reform. 

Following the Coalition's decision this month to scuttle talks over legislation to create a second Reserve Bank board, Labor has been waiting on a detailed response from the Greens and crossbench.

However, in a new demand that will almost certainly result in Labor killing the initiative, Greens economic justice spokesman Nick McKim said Mr Chalmers should wield his legislative power to order rate cuts as early as Tuesday's Reserve Bank meeting.

That power has never been used, and Mr Chalmers initially proposed to remove it as part of his reforms.

While he later offered to retain it in exceptional circumstances to address Coalition concerns, he has repeatedly emphasised his belief that the RBA's decision-making should remain independent and that the reforms should strengthen that independence.

Declaring the Reserve Bank's actions to be "inescapably political", Senator McKim said the Greens would alternatively back the changes if Reserve Bank governor Michelle Bullock lowered the cash rate herself without delay.

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

Finance Minister Katy Gallagher said the Greens' proposal was "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 on Monday morning.

"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."

Treasurer unlikely to opt for 'nuclear option'

With the Reserve Bank widely tipped to keep the official cash rate unchanged on Tuesday at 4.35 per cent, and for several months to come because of signs of stubborn inflation, the chances are close to zero of Mr Chalmers triggering what some economists describe as the "nuclear option".

Furthermore, Labor will almost certainly seize on the Greens' demand as another example of the minor party's unwillingness to embrace incremental change in favour of a populist headline.

Last week saw the government lash out at the Greens for refusing to back its Help to Rent housing legislation.

Senator McKim pre-emptively hit back at that charge, describing it as a "bullshit line" and said the Greens were "ready to negotiate".

"This offer to Jim Chalmers is absolutely a good-faith negotiation.

"He could accept it or not. That's a matter for him. But if they want to suggest this is being unreasonable, they're going to have to mount an argument that it's unreasonable for interest rates to come down."

Intervention could undermine confidence

The Greens have been vocal critics of the Reserve Bank's most recent interest rating hiking cycle, which saw the cash rate raised 13 times, from near-zero in early May 2022 to 4.35 per cent in November.

Direct intervention by the treasurer would shatter more than three decades of Reserve Bank independence and raise questions across global bond and currency markets about the institution's credibility as an inflation fighter.

Taken to an extreme, particularly via rapid interest rate cuts while inflation remains above the bank's 2 per cent to 3 per cent target range, such political tinkering could trigger sharp currency swings and elevate the interest cost payable by taxpayers to investors holding Australian government bonds.

The Greens demand puts them in the same company as Donald Trump, who last month said the US president should have a say in setting Federal Reserve interest rates that determine the cost of mortgages, credit cards and commercial loans.

"I think I have a better instinct than, in many cases, people that would be on the Federal Reserve or the chairman," he said.

Senator McKim, the party's spokesman for economic justice, indicated he saw no benefit in maintaining the bank's independence against short-term political imperatives.

"They're not infallible high priests of the economy and should not be immune to criticism," Senator McKim said.

"RBA board decisions are inescapably political in nature. They're trading off restraining inflation against throwing people onto the unemployment queue."

He said the current level of official interest rates was "contributing to people losing jobs and a massive transfer of wealth from younger people with larger mortgages to mostly older people with savings, and turbo-charging bank profits".

"These are all political decisions," he said.

The Greens indicated earlier this month that they would back Labor's Reserve Bank reforms if the government retained Section 11 of the Reserve Bank Act, which allows a treasurer to overturn the central bank's decisions, but did not demand that power be used immediately.

They also wanted to retain Section 36 of the Banking Act, which empowers the government to direct where commercial banks deploy funds generated during emergency quantitative easing.

Reforms on last legs

Mr Chalmers, who is not opposed to either of those requirements, is pushing to pass changes to the Reserve Bank's operations and governance in the wake of a review he ordered after criticism of the bank's pandemic-era decision-making.

The reforms would create a second board devoted to overseeing the bank's internal structures and performance, freeing up the existing monetary board to focus on interest rates and the economy.

Coalition treasury spokesman Angus Taylor withdrew support for the changes after more than a year of negotiations with Mr Chalmers, who he accused of trying to bully the Reserve Bank after this month blaming its interest rate settings for "smashing" the economy.

The Coalition is also concerned Dr Chalmers could use the reforms to stack the board with union officials.

Both Mr Chalmers and RBA governor Michele Bullock have said the changes are necessary.

The treasurer told parliament that it was not his preference to do a deal with the Greens but that the Coalition's decision meant he had little choice.

It is understood the government is keeping its options open while it gives the crossbench time to consider the bill.

"Now both the treasurer and governor know what's needed if they want these reforms passed: they have to bring interest rates down," Senator McKim said.

"We're agnostic about whether it's Jim Chalmers using the powers he's got or Michele Bullock and the board using their powers.

"We just want it done and we want it done soon.

"A 25 basis-point cut in interest rates would meet that demand.

"The current interest rate settings are smashing the economy and that's one thing we agree with Dr Chalmers on."