Treasurer Jim Chalmers has revealed he could extend Philip Lowe’s governorship of the Reserve Bank of Australia (RBA) upon the expiry of his term in September 2023.
When asked by reporters on Wednesday (8 February), Treasurer Chalmers said “all options were on the table”, with a decision subject to a government review.
“I mean it when I say that I will consult meaningfully with my colleagues closer to the middle of the year,” he said.
“We’ve got a Reserve Bank Review that I’ll receive next month and respond to after that. That will obviously be a factor in my thinking when it comes to how we make sure that the Reserve Bank has the right structures and objectives and how it weighs up those objectives.”
Earlier this week, the RBA tightened monetary policy for the ninth consecutive month, taking the cash rate to 3.35 per cent — the highest since September 2012.
The aggressive tightening cycle aims to curb inflation, but the Albanese government is concerned it would tip the economy into recession, with the full impact of the hikes yet to filter through to mortgage holders.
Approximately 800,000 mortgage accounts are set to switch from record-low fixed rates later this year, adding to fears of an accelerated slowdown in economic activity.
The RBA’s aggressive tightening strategy commenced despite assurances to the contrary from governor Lowe at the height of the COVID-19 crisis.
Governor Lowe had previously implied the record-low-rate environment would be maintained for years before an eventual increase in the cash rate.
The sudden commencement of a tightening strategy was heavily criticised, with many fearing the unexpected change would put newer borrowers under severe stress.
The RBA’s latest hike sparked calls from the Australian Greens for the government to override the decision.
But Treasurer Chalmers stressed the government would not interfere with the central bank’s independence.
“…One of the things that the review team won’t be messing with, and one of the things I won’t be messing with is the Reserve Bank board’s independence from government,” he said.
Assistant Treasurer Stephen Jones said the RBA’s independence has been an “important piece of economic policy” for close to 40 years.
“[The RBA] provides checks and balances. I think if we were to start overriding the independence of the Reserve Bank in its decision making that would create economic chaos, and we’re not going to do that,” he said.
Nonetheless, the Albanese government has reiterated its belief that the tightening cycle has achieved its purpose, with Assistant Treasurer Jones claiming “inflation has peaked”.
“We think we should be at the top or near the top of any tightening of monetary policy because we think households are doing it tough,” he said.
“We think we’ve hit the top of inflation. We should start to see it coming down over the next quarter.
“But we’re not going to be in the business of either directing or setting monetary policy. That would be winding the clock back 40 years, and we’re not going to do it.”
