Australia will get its first female Reserve Bank governor, Michele Bullock, and the order of the day is continuity with change.
Continuity because Bullock is an extremely well qualified RBA lifer with four decades of experience.
Change because the biggest thing going for Bullock is that she is “best-placed to take the Reserve Bank forward into the future”, as Anthony Albanese said, and is “committed” to implementing the RBA review recommendations, as the treasurer, Jim Chalmers, said.
For weeks, some in the Coalition have pressured the Albanese government to reappoint Philip Lowe, warning that appearing to punish him for a cycle of tough but necessary interest rate rises would harm the RBA’s independence.
The Liberal senator Andrew Bragg was first out of the blocks on Friday, claiming a failure to reappoint Lowe “risks locking in permanently high inflation as the Bank’s independence will be damaged”:
The shadow treasurer, Angus Taylor, was more measured, welcoming the appointment without implying the bank’s independence is shot.
Chalmers insisted on Friday that the government “cherishes” the RBA’s independence.
Beyond the effect on inflation and interest rates, the Coalition has tried to deal itself into the political debate in other ways.
On Thursday the opposition leader, Peter Dutton, warned against appointing the treasury secretary, Steven Kennedy, or the finance department secretary, Jenny Wilkinson, to the RBA position due to perceptions they would be too close to the government.
Labor slapped down that bit of overreach, with Albanese labelling it a “completely reprehensible” politicisation of the public service and noting that both Kennedy and Wilkinson have received senior appointments from the Coalition.
Chalmers was also in fine form, accusing Dutton of being “so relentlessly negative that he is even now bagging things that aren’t happening”.
“We won’t be taking lectures from the party of robodebt,” Chalmers said.
Aside from the continuity and change, a few aspects of the decision sit in tension.
Bullock is responsive to the government’s desire for structural change about the way monetary policy is set but fiercely independent when it comes to each individual decision made under the new framework.
I doubt punters who’ve experienced 12 interest rate rises really care about that fine distinction, or the Coalition’s weird sledging of the public service, or how an RBA insider can be the best person to shake up the central bank.
“What is going to happen to my rates?” will be the only question.
In this respect Bullock is especially blessed. She will inherit the levers of monetary policy either at or extremely near the end of the cycle of tightening.
Inflation, which peaked in late 2022, is on the way down and decreasing at an accelerating rate, with encouraging signs from other developed economies that this trend will continue.
Even Lowe, who for months has tortured mortgage holders with references to “further increases” – note the plural – has eased up.
Lowe now says it is “possible that some further tightening will be required”. Possible, but not definite. Might be required, necessarily implying that it might not.
With two more meetings before handing the reins over in mid-September, there’s every chance the first interest rate move under Bullock will be down, not up. That would introduce the new governor to the Australian public as the good cop to Lowe’s bad.
Even if the cash rate has to remain where it is or a little higher well into 2024, Labor is hoping that by the next federal election in 2025, the Australian economy will be in a goldilocks zone of low unemployment and not especially high, falling interest rates.
The opposition may hope for the best for the economy but, perversely, would benefit if inflation stayed high for a little longer.
There’s one last complication to throw into the political mix: stage-three income tax cuts.
As the International Monetary Fund warns the UK against pre-election tax cuts and the Tory party accepts that fighting inflation makes tax cuts unlikely, one wonders whether the Albanese government will similarly have to revisit stage three.
A week ago, Chalmers said that the tax cuts – worth $313bn over 10 years – are “not necessarily” inflationary.
“It kind of depends what the economy looks like when those tax cuts come into being more than a year away,” he told ABC Melbourne.
Labor wants the 12 rate rises to work their magic for two reasons, then: to hold an election during a period of monetary easing; and to avoid difficult questions about why they’re handing tax back while inflation is still high.
Lowe may have annoyed many Australians with his incorrect guidance that rates were unlikely to rise until 2024, before turning the screws on mortgage holders.
But if the tightening helps the Australian economy achieve that soft landing, then Lowe’s tenure as governor will look pretty good in the rearview mirror.
No wonder Lowe, a political punching bag through much of 2022 and 2023, goes with the government’s gratitude. Interest rate hikes have not made him popular, but he’s given his successor and the bank a clean slate.
