Sweeping reforms for Reserve Bank in new legislation

An overhaul of the Reserve Bank will create a new board solely for the setting of interest rates, with the governor's independence also to be bolstered under new laws.

Treasurer Jim Chalmers will introduce a suite of reforms to parliament this week in a shake up of the central bank following a major review released in April.

The amendments include the creation of a board that will set official interest rates, while a governance board oversees the RBA's operations.

The central bank's monthly meeting will be scrapped and replaced with eight meetings a year.

Under the reforms, the ability of the federal treasurer to override the Reserve Bank's monetary policy decisions will also removed in a bid to strengthen its independence.

These powers have been part of the central bank's legislation since its establishment, but they have never been used.

The legislation will also allow the members of the two monetary policy and governance boards to have their terms extended by two years, rather than the one year recommended by the review, after a maximum five-year term.

This is to allow more flexibility in ensuring the boards have struck the right balance between experience and renewal.