Interest rate hike brings down head of Australia’s central bank – 07/14/2023 – Market

Australia’s government rejected Philip Lowe for a new term as the country’s central bank chairman, deciding instead to promote his deputy, Michele Bullock, to implement a raft of reforms and control inflation.

Bullock, who will be the first woman to head the Reserve Bank of Australia (RBA), was the main internal candidate to replace Lowe, who has run the institution since 2016. It is the first time that Australia has not extended the term of an RBA governor in nearly three decades.

Lowe has suffered a strong public backlash since the RBA began a cycle of tightening interest rates last year, belying its earlier guidance that rates should stay low. The bank’s benchmark interest rate has been raised a dozen times, from 0.1% to 4.1%, over the past 15 months, and the bank has indicated that further increases may be needed.

The Australian Treasury’s decision to change the head of the central bank during a rate hike cycle is likely to draw wider scrutiny across the world, as governments raise questions about whether central banks have taken too long to react to the threat of inflation.

Shane Oliver, chief economist at financial services group AMP, said the public’s anger at rising interest rates in a cost-of-living crisis was not limited to Australia.

“There is a public backlash due to higher rates and an irritation with central banks,” he said. “That irritation has trickled down to politicians.”

Bullock is expected to implement recommendations from a bank review, which detailed more than 50 points to strengthen its governance and communication with the public.

Jim Chalmers, Australia’s government treasurer (equivalent to Brazil’s finance minister), who has previously described the decision on the direction of the RBA as one of the biggest of his government, said on Friday (14) that Bullock’s appointment ” combines experience and knowledge with a fresh perspective on leadership”.

Bullock said it was a “challenging time” to take office. “I am committed to ensuring that the Reserve Bank delivers on its policy and operational objectives for the benefit of the Australian people,” she said.

The RBA will hold press conferences following interest rate decisions starting next year to address concerns about its reporting policies that were raised in the review. A plan to separate the rate-setting board from the main RBA board is also expected to be part of the reforms. “As times change, we need to change too,” Lowe said this week.

Josh Williamson, Citi’s chief economist, said Bullock was the “most suitable candidate” to replace Lowe after a nomination process had become “protracted and unusually politicised”.

The vice president, a graduate of the London School of Economics and the University of New England, has been with the RBA for more than three decades. His two main rivals for the job were people outside the Treasury and Finance departments who might have a clearer mandate to make radical reforms to the bank’s operation and culture.

Bullock is widely considered a good communicator compared to Lowe, who was forced to defend the bank’s actions as necessary to contain the threat of runaway inflation. He also warned of the impact of a strong wage increase without productivity gains.

Translated by Luiz Roberto M. Gonçalves