It’s been a rough few years for RBA Governor Philip Lowe – many Australians have blamed much of their interest rate pain on the man heading the central bank.
But he could soon pass the baton.
Dr Lowe’s current term as governor will come to an end in September. His successor, or perhaps an extension of his term, is expected to be announced by Treasurer Jim Chalmers shortly.
It follows a wave of rate hikes put forward by the RBA. The cash rate has been lifted 400 basis points since May 2022 to sit at 4.1% right now.
If you’re a mortgage holder, you’ve likely felt the impact. And many are pointing their pitchforks at Dr Lowe who, in late 2020, appeared to promise rates wouldn’t rise until 2024 at the earliest.
“The RBA is perceived to have made some missteps, particularly that guidance in terms of not raising rates till 2024 at the earliest and the extent to which interest rates have gone up,” AMP chief economist Shane Oliver told Savings.com.au.
“But, as an economist, if the aim of the RBA is still to hit that 2% to 3% inflation target, it's not at all clear that a new governor would be doing anything differently.”
Could Lowe get a second go?
It's likely no surprise to many readers that Dr Lowe’s popularity has tanked in recent times.
But, while public anger at rising rates and broken promises “might argue against” Dr Lowe’s reappointment or the extension of his tenure, “economically, they're not good reasons to change him”, Dr Oliver said.
“I think if the inflation target remains in place, which is what the Reserve Bank review said should be the case, then a new governor would probably be unable to do anything different.
“There is an argument to let him finish the job, so to speak, and enable the new governor to take over at a time when things are a lot more stable.”
The RBA and the decisions it makes are far larger than one person. It not only manages monetary policy, but also maintains the financial system and issues Australian currency. The Governor is one of nine members of the decision-making Reserve Bank Board.
Further, a recent review into the central bank found it managed to contain inflation better than many of its international peers.
Still, keeping Dr Lowe in the top job could be a political minefield for Dr Chalmers.
That’s despite Dr Lowe being “quite possibly the most qualified candidate” and having “performed marvellously while at the RBA’s helm”, according to eToro market analyst Josh Gilbert.
“Lowe is – to many – the least likely pick of all, given he has already signalled his desire to step down from the high-pressure, low-thanks position,” he said.
“Jim Chalmers would know that tapping Lowe for another term will hurt his own position with voters, something that any sensible treasurer would want to avoid at the best of times.”
Dr Lowe’s time holding the RBA reins has often been divisive. Some believe the central bank should have pressed the hike button sooner than it did, potentially stopping monthly inflation from peaking at 8.4% over the year to December. Others have wondered if the RBA, under Dr Lowe, overstimulated the economy during the pandemic.
He has also faced backlash for comments suggesting those struggling to pay their mortgages should work more and spend less, and that battling Aussies live with their parents longer or consider taking in a roommate.
But there’s a notable potential downside to replacing Dr Lowe.
“There is a danger that if you replace Governor Lowe now then it may lead to a period of uncertainty where the new governor would have to establish their credentials in terms of fighting inflation,” Dr Oliver said.
“That could mean that they might have to raise interest rates more.”
Who else might be in the running to helm the RBA?
There are numerous names being thrown around as likely contenders for the RBA’s top job. And if someone new is appointed, they might find themselves well positioned.
“The bulk of the heavy lifting in terms of rising interest rates is behind us,” Dr Oliver said.
“If Governor Lowe increases rates again in August and then again in September, it may well be it.
“The new governor could get to oversee a period of ultimately falling interest rates, benefiting from the impact of the rate hikes that Governor Lowe has put through in terms of containing inflation.”
The top candidates expected to be in the race right now include:
Jenny Wilkinson – Finance Department secretary
Ms Wilkinson has held her position for close to 12 months and is thought to be well regarded by her peers in Canberra and the Treasurer.
“With plenty of media backing her as a clear frontrunner and a gold star next to her name in Chalmers’ books, it wouldn’t be a stretch to see Wilkinson claim top spot in September,” Mr Gilbert said.
Steven Kennedy – secretary to the Treasury
Dr Kennedy could also be among the front runners for the role.
He has held the top job at the Australian Treasury since 2019.
Michele Bullock – RBA Deputy Governor
Ms Bullock has been Dr Lowe’s deputy since 2022. On her appointment, she became the RBA’s first female deputy governor.
“Bullock is a natural consideration given her proximity to the role,” Mr Gilbert said.
If Ms Bullock or Ms Wilkinson end up with the title of RBA Governor, they’ll be the first woman to ever do so.
While Dr Oliver notes he doesn’t believe anyone has insider knowledge on who Dr Chalmers might pick, the three above-mentioned experts have popped up on plenty of radars.
Other “big names that could be top of the pile”, according to Mr Gilbert, are Australian Bureau of Statistics chief statistician David Gruen and former RBA Deputy Governor Guy Debelle.
“As a former Reserve Bank figurehead and the ABS’ current chief statistician, [Dr Gruen is] a credible pick with a firm reputation across a swathe of government agencies as well as within the media” Mr Gilbert said.
Meanwhile, he said Dr Debelle boasts “a reputation of being intelligent and quite cool – the latter quality being a very difficult descriptor for an economist to earn”.
Also speculated as a contender for the role, is former top public servant and chancellor of Macquarie University Martin Parkinson.
Image by the Reserve Bank Australia
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