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Australia’s government has rejected Philip Lowe for a renewed term as central bank governor, deciding instead to promote deputy Michele Bullock to implement a swath of reforms and bring inflation under control.
Bullock, who will be the Reserve Bank of Australia’s first female governor, was the leading internal candidate to replace Lowe, who has run the institution since 2016. It is the first time that Australia has not extended the term of a RBA governor in almost three decades.
Lowe has suffered a strong public backlash since the RBA started an interest rate tightening cycle last year, belying his previous guidance that rates were set to stay low. The bank’s main policy rate has been raised a dozen times, from 0.1 per cent to 4.1 per cent, over the past 15 months and the bank has indicated more increases might be needed.
The decision by the Australian Treasury to switch the head of the central bank during a rate-tightening cycle is set to attract wider scrutiny around the world, as governments launch inquests into whether central bankers were too slow to react to the threat of inflation.
Shane Oliver, chief economist with financial services group AMP, said public anger over rising interest rates in a cost of living crisis was not confined to Australia.
“There is a public backlash due to higher interest rates and an annoyance with central banks,” he said. “That annoyance has got through to politicians.”
Bullock is expected to implement the recommendations of a review of the bank, which has detailed more than 50 recommendations to strengthen its governance and communication with the public.
Jim Chalmers, Australia’s treasurer, who had previously described the decision on the RBA governor as one of the biggest for his government, said on Friday that Bullock’s appointment “combines experience and expertise with a fresh leadership perspective”.
Bullock said that it was a “challenging time” to be coming into the role. “I am committed to ensuring that the Reserve Bank delivers on its policy and operational objectives for the benefit of the Australian people,” she said.
The RBA will carry out press conferences after rate decisions from next year to address concerns over its communication policies that were raised in the review. A plan to split the rate-setting board from the main RBA board is also set to be part of the reforms. “As times change, we need to change too,” Lowe said this week.
Josh Williamson, chief economist at Citi, said Bullock was the “most suitable candidate” to take over from Lowe after an appointment process that had become “drawn out and abnormally politicised”.
The deputy governor, a London School of Economics and University of New England graduate, has spent more than three decades at the RBA. Her two main rivals for the role were outsiders from the Treasury and Finance departments, who might have had a clearer mandate to make sweeping reforms to the operation and the culture of the bank.
Bullock is widely seen as a good communicator compared to Lowe, who has been forced to defend the bank’s actions as necessary to bring the threat of rampant inflation to heel. He also warned of the impact of a sharp rise in wages without productivity gains.
Lowe in particular paid the price for policies adopted during the pandemic aimed at stimulating economic activity. He indicated in 2021 that interest rates would be unlikely to rise until 2024 but that forecast proved erroneous. Lowe was forced into an apology as result. “I’m sorry that people listened to what we’ve said and acted on that,” he told a senate hearing last year.
AMP’s Oliver said it was “grossly unfair” that Lowe had been made a scapegoat for forecasts made during the abnormal circumstances of the pandemic. “Unfortunately that has come back to bite him,” he said.
One former RBA official said the government had to make sure that the decision to replace Lowe was not seen as making “change for change’s sake” and was not a reaction to a “lack of perspective” around Australia’s relative economic success.
Australia is enjoying its lowest unemployment levels in almost 50 years while the rise in interest rates to 4.1 per cent over the past year is still below most comparable markets.
Mark Barnaba, whose six-year term on the RBA board ends in August, said the central bank had raised interest rates less than its counterparts in the US, Canada, the UK and New Zealand.
“Australia holds the enviable position of having the longest run in modern history without having had a recession — which occurred over the last 30-odd years. So, if that is the report card for the RBA and Australia, we should receive it with some pride,” he told the Financial Times.
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