Michele Bullock’s RBA appointment is no small change

The Albanese government has made a sound decision in choosing Michele Bullock as the new governor of the Reserve Bank of Australia, where her institutional knowledge will provide consistency and context as the bank undergoes the most profound reforms in its seven-decade history.

Currently the RBA’s deputy governor, Bullock has spent her 38-year career with the central bank. It is worth noting that even though she is an excellent choice and the historic appointment of a woman a timely opportunity to reflect societal change and expectations, Bullock has limited experience at the RBA in core economics. She has mostly been focussed on other areas the RBA looks after such as currency, business services and financial systems.

New RBA Governor Michele Bullock
New RBA Governor Michele BullockCredit: AAP

While the public face of the central bank has changed, Australia’s economic problems have not and the decision to remove current governor Philip Lowe at the end of his term in September is risky. We do not how know bad economy will get later this year and there are good arguments for continuity.

But the Herald considered Lowe had passed his use-by-date when the Albanese government backed a major overhaul of the RBA earlier this year following an independent review. The scathing review was a public humiliation for Lowe, who not only oversaw record low-interest rates and 10 consecutive rate rises but carried the odour for the bank’s perceived failings. Lowe was lambasted for signalling the RBA would hold the official rate at 0.1 per cent until 2024, a pronouncement blamed for convincing thousands of young homebuyers to borrow too much.

However, Lowe’s rate hikes and his ensuing maladroit efforts at public relations were not the primary reasons he had to go. The key argument for a new broom is that Lowe was not the right person to implement the changes recommended by the review.

Central banks around the world had separated governance from interest rates policy long ago but the RBA remained stuck in the past, faithful to a system no longer fit for purpose. Amid mounting criticism, Treasurer Jim Chalmers announced the review in July last year, not the RBA. So Lowe, appointed by the Coalition government seven years ago, was not exactly proactive in modernising his bank. The RBA reforms will likely see the abolition of the board and the establishment of two separate bodies – one that sets interest rates and another that oversees the bank’s governance and day-to-day operations. Given his history, it is reasonable to assume Lowe would have implemented the changes probably through gritted teeth.

Was Lowe a scapegoat for interest rates rising in Australia in the same way they have around world? Yes, but he spectacularly failed to talk to the public about why the hikes were needed. That said, Lowe showed some class and dignity lately as it became clear that he was to be thrown under the bus. His statement acknowledging his successor on Friday was equally gracious, saying the RBA was in “very good hands as it deals with the current inflation challenge and implementing the recommendations of the review”. He is not a villain but it was time for a change.

Bullock now steps up to drive changes enunciated in the review that hopefully will provide a better outcome for the national economy and ease the pain of inflation now imposed by interest rates on people struggling with the costs of living. We wish her luck.

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