The RBA Makeover – What to Expect

The Reserve Bank of Australia (RBA), Australia’s central bank, is in the midst of significant change.

This week Ms Luci Ellis has announced that, after 32 years with the RBA, she will depart from her role as Assistant Governor (Economic) and take up the role of Chief Economist at Westpac. Mr Guy Debelle, former RBA Deputy Governor, left the RBA in early 2022 for a job in the green energy sector. Another former executive, Dr Jonathan Kearns, left his role as RBA’s Head of Domestic Markets for the private sector in early 2023. Mr Debelle and Dr Kearns both had over 25 years of experience at the RBA.

Dr Philip Lowe’s term as Governor of the Reserve Bank of Australia is set to end in mid-September, with questions remaining over whether he will be re-appointed. This comes as Dr Lowe has faced pressure over his forward guidance that interest rates wouldn’t increase until 2024, with interest rates increasing 12 times and by four percentage points since May 2022.

At its last meeting on Tuesday, 4 July, the Reserve Bank decided to pause the cash rate at 4.10%. In a statement, Dr Lowe signalled that ‘further tightening may be required’.

Moreover, on 20 April 2023, the Treasurer of Australia, the Hon Dr Jim Chalmers MP, released the Review of the Reserve Bank of Australia. The 294-page-long Review contained 51 recommendations to facilitate an RBA that is ‘fit for the future’. Whilst the Review was focused on strengthening existing practices (such as Board transparency and policy framework clarity) rather than criticising the institution, confidence in Dr Lowe has nevertheless come under pressure following its release.

Treasurer Chalmers is now tasked with either reappointing Dr Lowe or appointing a new Governor of the RBA. The decision is expected to be announced this month, July 2023, and as is practice, he is likely to consult with the Prime Minister of Australia to aid his decision.

As such, the team at Nexus APAC have compiled an overview of the role of the RBA Governor, the frontrunners for the top job, and how the next Governor could make history.

The RBA Governor’s Role

The Reserve Bank Governor is the most senior position in the RBA, appointed for up to seven years by the Treasurer and eligible to be reappointed at the end of their term. The Governor leads a nine-member Board and approximately 1,400 staff at the RBA.

Given that political independence is a central pillar of the Reserve Bank’s philosophy and functioning, the Governor must also be trusted to maintain independence.

The RBA Board is Chaired by the Governor, an ex officio member along with the Deputy Governor (Deputy Chair) and the Secretary to the Treasury. The Board also has six external members who are appointed by the Treasurer of Australia for five years. They meet eleven times each year and, amongst performing other duties, determine the cash rate.

Since its establishment in 1960, the RBA has seen eight Governors, including Dr Lowe. Each of them has been a man – however, that could change this year.

The Frontrunners for the Top Job

The next Governor of the RBA will be facing a fight against inflation. Those speculated to be frontrunners for the task (apart from Dr Lowe) are Ms Jenny Wilkinson, Dr Steven Kennedy, Ms Michele Bullock and Mr Guy Debelle.

Ms Jenny Wilkinson PSM

Ms Wilkinson commenced as Secretary of the Department of Finance on 9 August 2022. In a speech introducing her, Treasurer Chalmers called Ms Wilkinson ‘the best of the best’.

Previously, she held several senior positions in the Public Service, including at the Federal Treasury as Deputy Secretary and as Head of the Independent Parliamentary Budget Office.

In 2021, she was awarded a Public Service Medal for outstanding public service in fiscal policy, particularly in relation to the federal government’s economic response to COVID-19 and its JobKeeper policy. Her experience will work in her favour given that on 5 July, Prime Minister the Hon Anthony Albanese MP said, ‘We want monetary and fiscal policy to work together’.

Wilkinson began as a cadet at the RBA in 1988 and spent more than a decade with the Bank. She possesses an amalgamation of an insider’s understanding of the RBA and an expert outsider’s fresh perspective.

Dr Steven Kennedy PSM

Dr Kennedy is currently the Secretary to the Federal Treasury and has held the role since September 2019, under both Federal Coalition and Labor governments.

Beforehand, Dr Kennedy was Secretary of the Department of Infrastructure, Transport, Cities and Regional Development for two years. Additionally, he has been Deputy Secretary at the Department of Prime Minister and Cabinet, the Department of Industry, Innovation and Science, the Department of the Environment and the Department of Climate Change and Energy Efficiency.

He was awarded a Public Service Medal in 2016 for outstanding public service in climate change policy.

His expertise in running large organisations is highly valuable. Dr Kennedy is said to be respected by both sides of politics throughout his extensive tenure in public service and is trusted by Treasurer Chalmers.

If Dr Kennedy is appointed as RBA boss, it’s speculated that Ms Wilkinson will be appointed as the first female Secretary to the Treasury in his place.

Ms Michele Bullock

Ms Bullock has been the Deputy Governor at the Reserve Bank of Australia and the Deputy Chair of the Board since her appointment in April 2022. Before that, she was Assistant Governor (Financial System) for more than a decade and had held numerous leadership positions such as Assistant Governor (Business Services) and Assistant Governor (Currency). Ms Bullock has been employed with the Bank since 1985.

Traditionally, the Deputy Governor has succeeded the Governor once their term has ended. Ms Bullock is an RBA insider through and through. She would be well-suited to maintain continuity to settle markets, whilst facilitating institutional change.

Ms Bullock came under pressure by some in June for her comments that the unemployment rate ‘will have to rise’ in order to get inflation down. Others praised Ms Bullock for demonstrating transparency and candour as a senior public official – which is exactly what the Government’s RBA Review has called for.

Mr Guy Debelle

Despite his sudden exit from the RBA, Mr Debelle is not to be overlooked in contention for the position of Governor.

Currently, he is a director of Fortescue Future Industries and an investment adviser to the Australian Retirement Trust, Australia’s second-largest super fund. His influence as a central banker is so pivotal that the Australian dollar briefly dipped upon his unexpected announcement that he would depart as Deputy Governor after seven years in the position.

He is reported to have been the driving force behind the RBA’s response to the GFC in 2008 as Assistant Governor (Financial Markets) and was also central to the RBA’s response to COVID-19. Internationally revered, he was tapped by then US Federal Reserve Vice-Chairman Donald Kohn to set up US dollar swap funding lines between the world’s major central banks in 2007 and was chosen to coordinate the international response to the LIBOR scandal.

Mr Debelle is deeply committed to climate change action and renewable energy, which is said to have been a cause of his exit from the independent central bank.

Insights                                                                                                                                       

Australia has never appointed a woman to run its monetary policy before as Reserve Bank Governor. Should Ms Wilkinson or Ms Bullock be appointed, history would be made. It would also be on par with the Albanese Government’s steadfast commitment to gender parity. For example, women now hold more than 50% of all government-appointed roles in Australia’s key economic and financial system institutions for the first time. Moreover, 70% of appointments in the Treasury portfolio went to women during Labor’s first six months in office.

Further, the appointment will signal what an RBA that is ‘fit for the future’ looks like.

Dr Lowe is scheduled to deliver a speech titled, ‘The Reserve Bank Review and Monetary Policy’ at the Economics Society Australia National Conference in Brisbane on Wednesday July 12. It may give insight into how the Reserve Bank is going to change over the next few months in response to the Review. Furthermore, it may offer an indication of factors that would prompt the RBA to act on its tightening bias next month or extend its pause.

Whether there is a new Governor or Dr Lowe’s term is extended, Australian investors, traders, super funds, consumers, and corporates should keep a close eye on the Reserve Bank this week.