Michele Bullock has been appointed Australia’s next Reserve Bank governor. Bullock will be the first female governor, replacing Philip Lowe in September – at a time when much of the bank’s work in fighting inflation will have passed and its focus will be on changing the way it operates.
The reappointment of Philip Lowe after his seven-year term came to an end as the government believed he is no longer well-equipped to lead the bank from here on. This was driven by his mistake of trying to keep the unemployment rate high to reign in home prices prior to the pandemic. Instead, this deliberate policy led to higher-than-needed unemployment, with estimates projecting that it cost the economy more than 270,000 jobs. Lowe’s mistaken approach to forward guidance, which effectively promised Australian households that interest rates would stay near zero until 2024, hurt many home buyers and diminished the bank’s credibility. Ultimately, disrupting Australia’s economic recovery from its COVID-19 losses
Now, Treasurer Jim Chalmers and Prime Minister Anthony Albanese believe that Bullock is the perfect fit as she can competently implement recommendations of the independent review of the bank in a less insular way. Despite her work at the Reserve Bank since 1985, her perspective still takes an ‘outsider’ perspective as majority of her work was completed outside of the core economic policy group.
Specifically, the appointment of Bullock in September will see a ‘reform agenda’ that coincides with key recommendations handed down in a government-ordered review earlier this year. This includes a move towards fewer meetings, with only eight official meetings held a year, rather than eleven, as well as the creation of a monetary policy committee that will set interest rates. There is also great speculation that Bullock could adopt an expansionary monetary stance. This will involve cutting interest rates within 12 months. This shift away from tightening monetary policy will release mortgage holders and households from the burden of the current 4.1% cash rate. A sharp jump in unemployment may also be avoided as aggregate demand within the economy is lifted. Ultimately, Bullock hopes to stimulate economic growth and stimulate consumption.