Philip Lowe enjoyed a dream start in his role as Reserve Bank governor, overseeing 29 consecutive board meetings over almost three years when official interest rates were left unchanged.
Should the treasurer, Jim Chalmers, replace Lowe when his seven-year term ends on 17 September his successor is unlikely to enjoy such a tranquil beginning.
Indeed, it’s feasible the initiation could be a testing one. Rich economies are slowing as central banks elevate interest rates to thwart inflation, intensifying the risks for overstretched borrowers going bust, triggering financial market panic.
Geopolitical tensions in Europe and Asia, too, remain high, while record global temperatures and a looming El Niño could unleash other unpredictable threats.
Chalmers and Lowe plan to attend a G20 gathering in India next week, offering a chance to announce an extension of Lowe’s term before they go or – more likely – his replacement on their return. A dozen interest rate rises have made him a popular scapegoat.
The treasurer may also prefer a new chief to enforce changes recommended by a rare review of the RBA, including creating a separate board to focus on monetary policy. The bank’s currency issuance and more mundane tasks can be left to the old board.
Given the financial portents, Chalmers will do well to ensure his choice can provide wise counsel in private and a project a calming gravitas in public.
Treasury tells us not to expect “a radical choice”. The candidate shortlist doing the punditry rounds include two presently on the RBA board who – with Lowe – helped steer the economy through Covid calamities.
These are Michele Bullock, the deputy governor, who would make history as the first female governor if she won a promotion, and Steven Kennedy, the Treasury secretary inherited from the Morrison government, who would shift his crisis management chops sideways if he accepted any offer.
Another potential candidate, Jenny Wilkinson, is used to breaking through barriers after becoming the first female head of an economic agency, the Parliamentary Budget Office, but has been secretary of the finance department less than a year. Her husband, David Gruen, heads the Australian Bureau of Statistics and is also considered to be in the running.
The remaining two are outsiders but with extensive insider nous. One, Martin Parkinson, is a former Treasury secretary who introduced the carbon price.
The other, Guy Debelle, is an former deputy governor who worked closely with Lowe during Covid and held senior roles during the global financial crisis.
Debelle was widely assumed to be Lowe’s successor before he quit last year to work for Andrew Forrest. One former RBA staffer predicted Debelle would receive “a hero’s welcome” from his erstwhile colleagues if picked.
Economists including Warren Hogan of Judo Bank say Chalmers would err if he picked someone from Canberra. “They will not have that understanding of banking and financial markets,” Hogan said. “That’s actually what monetary policy is.
“The only real option is Guy Debelle. He’s borderline brilliant … a pretty straight shooter.”
John Hawkins, previously a senior official at Treasury and the RBA and now a University of Canberra lecturer, agrees that Kennedy’s closeness to the government may count against him. Investors may see an undermining of the RBA’s independence and fear that fighting inflation will get a lower priority.
“You probably don’t want it to look like it was a takeover by Treasury of the central bank,” Hawkins said. “There might be a case for extending [Lowe’s] term for another year so as to give Bullock time to get across areas of the RBA.”
Jonathan Kearns, who left the RBA in January to join the funds manager Challenger, said one challenge facing a new governor would be timing the length of any rate pause.
“From September on there probably won’t be many – if any – rate rises,” Kearns said.
The jobless rate is almost certain to increase, as will private and business insolvencies as loans turns bad.
“There will be a lot [he or she] will be facing: an economy in recession, or trying to avoid that, and the question of when you start cutting [rates],” he said.
