Australia’s market is in the dark as the clock ticks down on the government’s decision regarding the Reserve Bank of Australia (RBA) chief. After the recent July policy meeting, the head of the central bank awaits news about whether he will stay in charge or make an early exit, haunted by past policy mistakes.
As the uncertainty lingers, it remains unclear if Treasurer Jim Chalmers will reappoint RBA Governor Philip Lowe or succumb to public pressure for fresh leadership in an institution that faltered in its policy communication during the pandemic.
This month, Chalmers will determine whether Lowe’s current seven-year term, set to end on Sept. 17, will be extended. However, frustratingly, Chalmers has remained silent on the matter, leaving everyone in suspense.
Lowe has been under scrutiny since his repeated claims in 2021 that interest rates would not rise until 2024. Yet, in a surprising turn of events, he reversed course and hiked rates in mid-2022 when inflation unexpectedly surged.
In November, Lowe apologized to those who had taken out mortgages based on his guidance, admitting, “At the time, we believed it was the right thing to do, but looking back, we would have chosen our words more carefully.”
While the RBA provided some relief to distressed borrowers by leaving rates unchanged after twelve agonizing hikes, Chalmers was noticeably absent from the customary post-meeting conference. He won’t be back until next week.
On July 12, Lowe is scheduled to deliver a speech on the economy, where questions about his future are bound to arise. However, he is likely to defer to Chalmers, stating that the decision rests in the treasurer’s hands.
Thus far, the markets have maintained a calm demeanor throughout this protracted process, assuming that the RBA will eventually find capable hands to steer the ship. The rumored shortlist of candidates reassures them that the institution will remain in safe hands.
“If there wasn’t that list, the markets would be more concerned,” remarked Shane Oliver, chief economist at AMP Capital. “Luckily, everyone mentioned is a solid choice, which has alleviated the uncertainty.”
Among the contenders are Michele Bullock, the current deputy governor of the RBA, and Jenny Wilkinson, the head of the government’s finance department, who boasts over a decade of experience at the central bank. These individuals have emerged as front runners, partly due to the mounting pressure for Chalmers to appoint the first female head of the RBA.
There is also talk of a dark horse, Guy Debelle, a former RBA deputy governor who resigned last year to join mining billionaire Andrew Forrest’s green energy business.
Chalmers might opt to reappoint Lowe for a shorter period to oversee the RBA’s ongoing tightening cycle and the planned operational and structural changes.
“It makes the most sense to keep Lowe for a while,” advised AMP’s Oliver. “Changing jockeys in the middle of a race is never a wise move.”
