Australian Government to Reveal Reserve Bank Governor’s Position in July

Pedestrians walks past the Reserve Bank of Australia in Sydney, Australia, on June 4, 2019. Peter Parks/AFP via Getty Images

The Australian government will announce the position of the Reserve Bank governor within weeks, which may bring a fresh pair of eyes to the monetary authorities’ struggle against inflation.

This comes as the incumbent governor Philip Lowe will finish his seven-year term in September.

Despite helping the Australian economy navigate the COVID-19 pandemic, Lowe has been subject to heavy criticism for giving unclear messages indicating that interest rates would remain low until 2024, which turned out to be untrue.

Since May 2022, the Reserve Bank of Australia (RBA) has lifted the official cash rate 12 times to contain soaring inflation, taking the rate from the historic low of 0.1 percent to the current 4.1 percent and causing many Australians to experience mortgage stress.

Treasurer Jim Chalmers at a press conference at Parliament House in Canberra, Australia, on July 20, 2022. AAP Image/Mick Tsikas

While the governor has expressed his willingness to continue a second term, Treasurer Jim Chalmers has left open the possibility of appointing a new face to the position.

During an interview with ABC radio, the treasurer confirmed that he planned to make a call on the RBA’s leadership in July.

“This is a big job, and it’s a big call, and we’re working through it in the usual methodical and considered way,” he said.

“I am in the process of consulting with my cabinet colleagues and others as well. I hope to finalise a view in the coming weeks.”

The treasurer said that the government was looking to make an announcement on its decision in July before parliament resumes.

No Confirmation on Lowe’s Reappointment

While Chalmers did not confirm whether the government would reappoint Lowe, he noted that the upcoming governor needed to possess a number of qualities.

“Obviously, the Reserve Bank governor needs to be well placed to implement the recommendations of the [RBA] review, to take the Reserve Bank into the future,” he said.

“There are all usual considerations in that: a person of credibility, a person with experience, and a person able to take the Reserve Bank forward.”

In April, the federal government released an independent review of the RBA, which outlined many measures to improve the bank’s effectiveness in making policy decisions, strategies and judgments.

RBA Governor Philip Lowe delivers the keynote address during the Australian Banking Association Banking 2022 banking conference in Sydney, Australia, on March 11, 2022. AAP Image/Dan Himbrechts

Some major recommendations included creating a second board specifically for setting interest rates and removing the RBA’s power to direct lending policies of private banks.

“It’s a key institution that obviously makes decisions that matter a great deal to the living standards of the Australian people,” Chalmers said.

“That’s why we don’t take decisions like this lightly.”

Lowe has signalled that he is willing to continue his position and lead the RBA reform.

Meanwhile, RBA’s deputy governor Michele Bullock has declined to comment on whether she would assume the position if offered to her.

RBA Faces Difficulties with Inflation Control

Chalmers’ remarks come after the RBA expressed that it was facing challenges in the fight against inflation due to the tight labour market.

Australia’s unemployment rate has stayed below four percent and the rate associated with full employment in the economy since October 2022, with the May level declining to 3.6 percent.

However, during a speech at the Australian Industry Group, Bullock said a jobless rate of around 4.5 percent was considered the lowest possible level consistent with the RBA’s inflation target band of two-to-three percent.

While Bullock indicated that a higher unemployment rate might be needed to get the economy “closer to a sustainable balance point,” she said the RBA board had been willing to accept a more gradual return of inflation to target than many other central banks.

“A faster return to target would likely mean more job losses in the short term,” she said.

“Our judgement is that if we can return inflation to target in a reasonable timeframe–while preserving as many of the employment gains as we can–that would be a better outcome.”