The risks in appointing Australia’s Next Top Central Banker

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Liberal senator Jane Hume throwing her support behind Philip Lowe to head the Reserve Bank for another term wouldn’t have been a spirit-lifting moment for the central bank governor. His future just got more politicised.

If Lowe even had a small chance of being retained as governor, Hume, the shadow minister for finance, lessened the odds, as Prime Minister Anthony Albanese and Treasurer Jim Chalmers won’t want to be seen to be taking the opposition’s advice.

Reserve Bank governor Philip Lowe … soon to be former?Credit: Louise Kennerley

The race to choose Australia’s Next Top Central Banker is almost over, as Chalmers has assured the public an announcement will be made this month.

Sure, Lowe is still in the running to secure the role for another three years, but his fate has already become too politicised.

Neither Chalmers nor Albanese has gone into bat for Lowe. The government would rather ditch Lowe in an expedient and forceful response to the public backlash the Reserve Bank has endured for raising rates.

The Lowe witch hunt began in Canberra when a bunch of backbenchers gained political mileage arguing that people in their electorates were feeling excessive pain from higher interest rates.

Philip Lowe has become the lightning rod for the hurt borrowers are feeling after 12 rapid-fire interest rate rises.

He has become the lightning rod for the hurt large parts of the community are feeling after 12 rapid-fire interest rate rises have played havoc with Australia’s borrowers.

Canberra understands that Lowe must become the fall guy, and they must be seen as meting out punishment.

The Liberals also understand the politics of scapegoats and until now, have avoided taking a stand supporting Lowe, whom the Morrison government appointed.

It certainly looks like Hume has gone a little rogue in her vocal support for Lowe. And Opposition Leader Peter Dutton and shadow treasurer Angus Taylor didn’t fall in behind her. Not a word from either.

Liberal senator Jane Hume supports Philip Lowe continuing as Reserve Bank governor.Credit: Alex Ellinghausen

You have to hand it to Hume, for honestly speaking her mind this week when declaring the government had “demonised” Lowe, whom she says was “only doing his job”.

That said, any decision by the government to replace Lowe comes with a number of dangers.

To be sure, the handful of shortlisted candidates are very well-credentialed, but the first potential pitfall is that a replacement is not as competent as Lowe himself.

Lowe has a strong support base in the economics community and is seen by many to be the best person for the job, in terms of academic credentials, experience and temperament.

Business leaders and senior executives in the banking industry privately support Lowe and his attempts to combat entrenched inflation even while acknowledging his judgment erred when he predicted interest rates would likely remain at record lows until 2024.

The next potential hazard for Chalmers is installing a public servant into the Reserve Bank governor’s seat. This could be interpreted as impinging on the central bank’s independence.

Treasury secretary Steven Kennedy is reportedly the frontrunner and a contender along with finance secretary Jenny Wilkinson.

And then there is a risk that a change at the top of the central bank produces more of the same. If a new governor deems it best for the economy to take up the mantle of inflation fighter and continues to increase interest rates, the public howls of protest will just be redirected – and the government won’t win any brownie points for replacing Lowe.

Treasury Secretary Steven Kennedy – the favourite?Credit: Alex Ellinghausen

(That said, the good news for the incoming governor is that the heavy lifting on rates would have already been done under Lowe, so Australia’s next central banker will more likely have the job of lowering rates when they take up their position in September.)

There is even an argument to suggest that if Lowe was to be granted an extension, he might not race as hard to lift rates in the near term.

This has some merit given Lowe would prefer his legacy is seen as an inflation buster, if he has three more months to get that job done.

While Lowe might be thick-skinned, the biggest question of all is why he would want to extend his term given the abuse he has already endured.

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