Australian Treasurer Jim Chalmers’ delay in announcing the next Reserve Bank governor may limit his options to local candidates and could even see incumbent Philip Lowe receive an extension, former senior central bank officials, lawmakers and economists say.
(Bloomberg) — Australian Treasurer Jim Chalmers’ delay in announcing the next Reserve Bank governor may limit his options to local candidates and could even see incumbent Philip Lowe receive an extension, former senior central bank officials, lawmakers and economists say.
Lowe, whose seven-year term expires Sept. 17, has faced criticism over his policy guidance and communications, prompting many observers to conclude he won’t be reappointed. Chalmers last week pushed back the decision to July 31 at the latest, all-but ruling out an offshore candidate given the tight timeframe.
As a result, Chalmers is likely to select from a small coterie of well-qualified local candidates, including Department of Finance Secretary Jenny Wilkinson, Treasury Secretary Steven Kennedy and Deputy Governor Michele Bullock. Even as Chalmers is said to have a shortlist, no single name has emerged as an overwhelming favorite.
“My suspicion is that Chalmers is probably still searching,” said Jonathan Kearns, who until March headed up domestic markets at the central bank. “It’s disruptive for the RBA if Phil doesn’t yet know whether or not he’ll stay in his role after September.”
RBC Chief Economist for Australia Su-Lin Ong echoed that view, saying “the process to find the governor’s replacement is not easy. There’s no obvious person because if there was one, it would probably be announced.”
Chalmers initially said he would make a decision around midyear — building expectations for a June announcement — and on Thursday shifted that to July.
One solution with limited disruption would be to name Kennedy, who is already on the RBA’s board, as governor. That would open the top job at Treasury to Wilkinson, who has often been discussed as the next treasury secretary.
Whoever takes the helm at the RBA will confront stubborn inflation and oversee the biggest reform of the central bank in decades following an independent review. That will be a significant task, particularly if the new governor also has to keep raising rates and parry the accompanying criticism.
With Chalmers and Lowe both traveling to India from July 14-18 for the G-20 Finance Ministers and Central Bank Governors meeting, an announcement on the next RBA chief is only likely to come after that.
“If the treasurer can’t find an attractive candidate willing to do the job, then Philip Lowe becomes a more likely alternative,” said Peter Tulip, chief economist at the Centre for Independent Studies and a former RBA official. “He wouldn’t be their first choice though.”
Lowe has expressed a desire to remain in the role. His two predecessors both received three-year extensions to serve 10 years as governor.
Tulip said two of the three members of the RBA Review, Gordon De Brouwer and Carolyn Wilkins are strong candidates to replace Lowe. They can be “relied on to promote and implement the recommendations of the report in a way that you could not expect an internal candidate.”
De Brouwer, who is commissioner of the public service, declined to comment on whether he had been approached for the role. Another potential candidate, former RBA Deputy Governor Guy Debelle, who quit last year to work in green energy and remains popular with RBA staff, was overseas and couldn’t be reached.
The inquiry into the RBA recommended that the central bank, among other changes, establish a separate committee for rate decisions, hold fewer policy meetings and conduct a press conference after each one.
“The problem with Phil Lowe or with Michele Bullock is that they’re part of the old culture that the review is trying to change,” Tulip said.
‘Put Off Anyone’
Some local media have run a fierce campaign against Lowe, with Sky News television and the Daily Telegraph newspaper describing him as a “dead man walking.” A TV camera crew is permanently stationed outside the governor’s home and politicians take any chance to criticize him.
Lowe’s biggest error was an early-pandemic call that rates were unlikely to rise before 2024, a stance he maintained until late-2021. A global spike in inflation forced the RBA to move in May 2022 and since then it has hiked by 4 percentage points to take the cash rate to 4.1%.
While most central bankers face a backlash during a tightening cycle, the aggression toward Lowe has been unprecedented in Australia.
“How the environment has changed for the governor recently has certainly made it harder for the new candidate in terms of the intense criticism from media and politicians,” said Kearns, now chief economist at money manager Challenger Ltd. “That will put off anyone from taking on this job.”
Bernie Fraser, who was RBA governor from 1989-1996, said Lowe like his predecessors had done “a pretty good job in holding the show together” through all the crises.
“The 2024 prediction was an error of judgment and Phil’s conceded that was a bad calculation on his part,” said Fraser, the only governor in the past 34 years to come from outside the RBA, hailing from Treasury. “The unfortunate thing about it was it came at a time when the bank’s credibility in the public mind was very high so they believed him.”
While Chalmers’ delay in naming a governor would suggest he is struggling to find a suitable replacement, John Hawkins, a senior lecturer in economics at the University of Canberra, argued that it couldn’t be done earlier because otherwise you end up with two governors.
The problem is the media start focusing on the monetary policy views of the next governor and it becomes “an awkward, awkward situation,” said Hawkins, who previously worked at the RBA.
Garth Hamilton, an opposition lawmaker and deputy chair of the Australian parliament’s Standing Committee on Economics, which the RBA governor fronts twice a year for testimony, said if Lowe is removed it will be the result of “politics rather than performance.”
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