Philip Lowe, governor of the Reserve Bank of Australia (RBA), has said he is willing to stay at the helm of the central bank if the Albanese government extends his term beyond September 2023.
In an address to the media on Thursday (20 April) following the long-awaited release of the An RBA fit for the future report, Dr Lowe defended the central bank’s management of monetary policy settings amid ongoing scrutiny.
The RBA was accused of adopting an excessively dovish strategy when setting monetary policy at the height of the COVID-19 pandemic.
Record-low interest rates were accompanied by time-based guidance for a future hike, with governor Lowe famously suggesting no hikes would be actioned until 2024.
The subsequent commencement of aggressive monetary policy tightening in early 2022 cast doubt over the governor’s judgement and prompted calls for his resignation.
But Dr Lowe said he would accept a term extension if offered by Treasurer Jim Chalmers in September.
“…If I was asked to stay, then I would. It’s an important, responsible, and honourable job,” he said.
“If the government would like me to stay, then I’m happy to stay. But if they want somebody else, [I’d] perfectly understand that and have other things to do with my life.”
Dr Lowe was asked if he believed the 294-page RBA review’s recommendations to overhaul the central bank’s processes was a reflection of his personal leadership.
“I don’t take this personally because I’m just one person on a board of nine and a staff of 1,500,” he responded.
“I know when I’m with the board and with the staff, how dedicated we are to doing the right thing in the public interest.
“We don’t always get it right, but we always try and do the right thing by the Australian people.”
Appearing on The Adviser’s In Focus podcast, Phillip Tarrant, Momentum Media’s managing editor of property and financial services, defended governor Lowe’s stewardship of the RBA.
Mr Tarrant pointed to unprecedented economic headwinds underpinning the COVID-19 crisis and unforeseen global developments, like Russia’s invasion of Ukraine, which exacerbated inflationary pressures and complicated the RBA’s assessment of economic conditions.
“It’s the hardest job in Australia in many ways, and often thankless,” he said.
“Everyone loves you when interest rates are low [and] mortgages are at 2 per cent.
“…As soon as you start putting rates up, you’re [the] most hated person in Australia.”
‘All for the eight’
Among the key recommendations of the RBA review — launched in July 2022 — is a major overhaul of the RBA’s decision-making processes, with a call to establish new, function-based, RBA boards (recommendations 8 and 12).
Specifically, a monetary policy board — responsible for monetary policy decisions and oversight of the RBA’s contribution to financial system stability (except payments system policy) — would operate separately from a new corporate governance board.
The 294-page review also includes a recommendation to reduce the number of monetary policy board meetings from 11 meetings per year — held on the first Tuesday of every month, except in January — to just eight meetings.
Recommendation 9 states this change would “allow for more in-depth discussions” of the forecasts, strategy, and other monetary policy issues.
The extra time would also allow the monetary policy board to “hear the views of a wider range of RBA staff”, particularly for the six external board members.
According to Mr Tarrant, reducing the number of board meetings would let the RBA’s monetary policy decisions “breathe”.
“We don't need to rush with our decision making. Bad decisions are made if decisions are rushed,” he said.
“…You can’t change much in 30 days. Let it go 60 to 90 days to assess cause and effect.”
The RBA paused its monetary policy tightening cycle earlier this month after 10 consecutive hikes to the cash rate, totalling 350 bps.
Mr Tarrant said the RBA may keep rates on hold again in May to assess the full impact of its tightening cycle before determining its next move.
The cash rate, currently at 3.6 per cent, is expected to be close to its peak.
Two of Australia’s major banks, ANZ and the Commonwealth Bank, are projecting one final 25 bps hike and a terminal cash rate of 3.85 per cent.
