Australia’s Delay Naming RBA Governor Bolsters Kennedy, Bullock

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(Bloomberg) — Australian Treasury Secretary Jim Chalmers’ delay in announcing the next Reserve Bank governor could narrow his options to domestic candidates and could even see incumbent Philip Lowe get an extension, former senior central bank officials, lawmakers and economists say.

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Lowe, whose seven-year term expires Sept. 17, has faced criticism over his political directives and connections, leading many observers to conclude he will not be reappointed. Chalmers delayed the decision last week to July 31 at the latest, except to disqualify an outside candidate given the tight timeframe.

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As a result, Chalmers will likely choose from a small pool of well-qualified domestic candidates, including Finance Minister Jenny Wilkinson, Treasury Secretary Stephen Kennedy and Lieutenant Governor Michelle Bullock. Even when Chalmers is said to have a shortlist, no single name has emerged as an overwhelming favourite.

“I suspect Chalmers may still be looking,” said Jonathan Cairns, who headed domestic markets at the central bank until March. “It is disturbing for the RBA if Phil does not yet know whether or not he will remain in office after September.”

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RBC’s chief economist for Australia Su-Lin Ong echoed this view, saying, “The process of finding a replacement for the governor is not easy. There is no obvious person because if there is one, it will probably be announced.”

Chalmers initially said he would make a decision around the middle of the year — building expectations for the June announcement — and on Thursday he shifted that to July.

One solution with limited disruption would be to appoint Kennedy, already on the RBA board, as governor. That would open up the top position in the Treasury for Wilkinson, who was often discussed as the next Secretary of the Treasury.

Whoever heads the RBA will face stubborn inflation and oversee the biggest reform of the central bank in decades after an independent review. This will be a big task, especially if the new ruler is also to continue to raise prices and avoid the accompanying criticism.

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With Chalmers and Lowe traveling to India from July 14-18 for a meeting of G20 finance ministers and central bank governors, an announcement of the next RBA president is likely to come next.

“If the treasurer cannot find an attractive candidate willing to do the job, then Philip Lowe becomes a more likely replacement,” said Peter Tulip, chief economist at the Center for Independent Studies and a former RBA official. However, it wouldn’t be their first choice.

Lowe has expressed interest in staying in the role. His predecessors both received three-year extensions to serve 10 years as governor.

Two of RBA Review’s three members, Gordon De Brewer and Caroline Wilkins, are strong candidates to replace Lowe, Tulip said. She can be “relied upon to promote and implement the report’s recommendations in a way that you would not expect from an internal candidate”.

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De Brewer, the public service commissioner, declined to comment on whether he had been approached to take on the role. Another potential candidate, former RBA deputy governor Guy Debelle, who quit last year to work on green energy and remains popular with RBA staff, has been out and about.

The RBA investigation recommended that the central bank, among other changes, create a separate committee for rate decisions, hold fewer policy meetings and hold a press conference after each meeting.

“The problem with Phil Lowe or with Michele Bullock is that they are part of the old culture that the review is trying to change,” Tulip said.

put off anyone

Some local media launched a fierce campaign against Lowe, with Sky News and The Daily Telegraph describing him as a “walking dead man”. A TV camera crew is permanently stationed outside the governor’s house and politicians seize any opportunity to criticize him.

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Lowe’s biggest mistake was an early pandemic call that prices were unlikely to rise before 2024, a position he maintained until late 2021. A global spike in inflation forced the RBA to act in May 2022, and since then it has risen by 4 points. percentage, bringing the liquidity rate to 4.1%.

While most central bankers face a backlash during a tightening cycle, the aggression on Lowe was unprecedented in Australia.

Cairns, now chief economist at money manager Challenger Ltd., said: “How the environment has changed for the governor recently has certainly made it more difficult for the new candidate in terms of the heavy criticism from the media and politicians.” take over this job.”

Bernie Fraser, who was governor of the Reserve Bank of Australia from 1989 to 1996, said Lowe like his predecessors had “done a very good job of keeping supply together” through all crises.

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“Predicting 2024 was a miscalculation and Phil admitted that was a bad calculation on his part,” said Fraser, the only governor in the past 34 years to come from outside the RBA, who hails from the Treasury. “The unfortunate thing is that it came at a time when the bank’s credibility in the public mind was very high, so they believed it.”

While Chalmers’ delay in naming a governor suggested he was struggling to find a suitable replacement, John Hawkins, a senior lecturer in economics at the University of Canberra, argued it couldn’t be done earlier because otherwise you end up with two governors. .

Hawkins, who previously worked at the Reserve Bank of Australia, said the problem is that the media is starting to focus on the incoming governor’s monetary policy views and it becomes an “awkward and confusing situation”.

Garth Hamilton, an opposition lawmaker and deputy chair of the Australian Parliament’s Standing Committee on Economics, which the RBA governor sits on twice a year to testify, said if Lowe was removed it would be a result of “politics, not performance”.

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