When the Albanese government announced Michele Bullock as the next Reserve Bank governor on Friday, few were particularly surprised – and that was the plan.
Sure, the opposition leader, Peter Dutton, got on the front foot the previous day, prematurely warning against choosing a public servant. The treasurer, Jim Chalmers, had shared his shortlist with his shadow, Angus Taylor, but held back Bullock as his pick.
Treasury had been content for pundits to ponder over a handful of likely choices for weeks. Chalmers told Friday’s media briefing he had singled out Bullock, the deputy RBA governor of just 15 months, “for a while now” as the “best person”.
It’s not entirely clear why the incumbent, Philip Lowe, was ruled out for an extension. A narrative set in that Lowe had to go because he had failed to foresee the global inflation rate spiking in 2022.
On that score, no central bank boss would retain his or her job. Nor would private economists who forecast inflation at 4% or less for last year and saw it instead sail past 8% by December. Russia’s invasion of Ukraine just wasn’t among risk parameters.
Chalmers’ choice ultimately hinged on the need for a reformer to implement the many recommendations of the RBA review. He deemed a new chief, and one highly regarded within the RBA, was preferable, despite Bullock being arguably as much an RBA “lifer” as Lowe himself, having spent her entire career at the bank.
Borrowers wondering if the change of governor will ease their financial strain are likely to be disappointed. Remember, Bullock has been one of the nine RBA board members who decided to raise interest rates at 12 of its past 14 meetings.
Chalmers does get to nominate a new deputy governor to take Bullock’s position on the board before the October board meeting. On his track record, the treasurer is unlikely to select a radical.
The UBS Australia chief economist, George Tharenou, who has correctly picked the past 12 RBA rate decisions, said “overall, the change of RBA governor is not material enough to change our near-term cash rate forecasts”.
He still expects the RBA to lift the cash rate one more quarter-point to 4.35%, most likely in August – when Lowe is still in charge.
While the ACTU initially panned a recent speech by Bullock on achieving full employment because she said the jobless rate would have to rise to help bring down inflation, Tharenou said Bullock was “at the margin on the dovish side”.
Bullock said “just because our inflation objective has been in focus recently, it does not mean that the other part of our mandate – maintaining full employment – has become any less important. Full employment is, and has always been, one of our two main objectives.”
The jobless rate was 3.6% in May and we’ll get June numbers next Thursday. Another month of strong job creation may shift sentiment about whether Lowe has just one more rate rise to make – or indeed whether that painful baton will be passed on to Bullock.
Warwick McKibbin, a former RBA board member for a decade and now the director of ANU’s Centre for Applied Macroeconomic Analysis, said the new governor would do what the economy demanded as far as interest rates go.
“You’ve got the global inflation rate, which is now coming down. Australia’s inflation rate will be roughly determined by that, plus or minus,” McKibbin said.
At 4.1%, the RBA’s cash rate remained negative because it was below the inflation rate and so “was not tight yet”, he said. Add to that the fact fiscal policy in Australia remained “very stimulatory”, pushing up demand even as the central bank tried to curtail it.
John Hawkins, now at the University of Canberra after lengthy stints at the RBA, the Treasury and Hong Kong’s monetary authority, said some of the changes may be more about style – but will be important all the same.
“She is a plain speaker but also has a lot of emotional intelligence, which will stand her in good stead both in the managerial and communications aspects of the new job,” he said of Bullock.
Whether Bullock avoids having to declare a rate rise early on as governor remains to be seen. If the recent underestimates of the strength of the labour market are any guide, though, the surprise might be that Australia avoids much jobs shedding.
“If we can get inflation back to the [2%-3%] target without unemployment rising above 4%, that would be a great result,” Hawkins said.
