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Federal Shadow Treasurer in support of Bullock appointment
Federal Shadow Treasurer Angus Taylor has said that the Federal Labor Government’s decision to change the RBA Governor does not make up for “a year of inaction on inflation.”
“Along with strong economic management, a strong Reserve Bank is essential to addressing the inflation that is driving higher prices.”
Taylor also commended Lowe’s performance throughout his career.
“Dr. Lowe has been an independent, distinguished, and dedicated Governor who has helped to steer Australia through some of our biggest economic challenges,” Taylor said.
“Michele Bullock is a highly capable economist, with qualifications from the London School of Economics and University of New England, who has served the Reserve Bank with distinction for 38 years.”
Continuity important for RBA: Oxford Economics
“I think that continuity is really important here for the RBA,” Oxford Economics Head of Macroeconomics Sean Langcake said, calling Bullock “eminently qualified.”
Langcake used to work at the RBA.
“[The RBA is at] a critical juncture in terms of policy and what they do internally in terms of implementing the terms of the review.”
“This isn’t the Big Bang step of bringing in an outsider to go through the place with a broom, and some people will criticise that, but … [this is] ultimately a good choice.”
Langcake noted Bullock has been present in the last year of RBA meetings and that this will be a strong advantage.
Lowe in support of Bullock
Now outgoing RBA Governor Philip Lowe has released a statement today commending the selection of Michele Bullock and welcoming the inbound Governor into the fold – not that she’s any stranger.
“The Reserve Bank is in very good hands as it deals with the current inflation challenge and implementing the recommendations of the Review of the RBA,” Lowe said.
“The Treasurer has made a first-rate appointment.”
Michele Bullock, in turn, has expressed her respects to Lowe, and reiterated her enthusiasm for the appointment announced today.
Flat Australian dollar suggests confident market
The market appears to be expecting no big changes when Michele Bullock becomes the new RBA Governor in September.
After serving as RBA Deputy Governor, Ms Bullock will now take over the top job, becoming the first female to lead the central bank in its 63-year history.
She is no stranger to the RBA’s interior hallways. Ms Bullock joined the RBA C-suite in 2010, becoming Assistant Governor for Currency.
In 2015, she served as Assistant Governor for Business Services, and in 2016, transitioned to Assistant Governor for the financial system.
In 2020, Ms Bullock emphasised that the Australian financial system was strong and well-placed to support households. Two years later, the government would begin to raise interest rates, pinching mortgage holders.
Ms Bullock’s one prescient prediction was that business and household loans would recede over the COVID and post-COVID era, resulting in credit losses for Australia’s traditional four big banks.
And today, City Index Senior Market Analyst Matt Simpson observed the Australian dollar did not shift much following the news of Ms Bullock’s appointment.
“It will be good to get some new blood so to speak, but [I’m] not expecting a huge shakeup,” he said.
WA Shadow Treasurer weighs in
Western Australia Shadow Treasurer Steve Thomas says the Federal Government has succeeded in politicising the RBA by removing Philip Lowe from the Governor role, to be replaced by Deputy Governor Michele Bullock.
“The Federal Government has succeeded in the politicisation of the RBA,” he said, describing the outcomes of this morning’s Cabinet meeting as something that undermines the central bank.
“A highly politicised RBA is dangerous.”
Mr Thomas believes that the move to replace Lowe as Governor is more to do with Lowe’s biggest career error – mis-reading the economy and not raising rates when the rest of the world did.
Following that viewpoint along its natural path, Canberra is effectively scrambling to make sure the Australian people perceive it to be doing something, despite the fact money markets did not react to the news of the appointment, suggesting the market expects more of the same.
Thomas did not mention Lowe’s advice to mortgage holders that rates would not increase until the mid-2020’s in the early stages of COVID.
2018 speech
In a 2018 speech, Ms Bullock told attendees of an Ai Group lunch that she was responsible for the area of the RBA that “focuses on financial stability.” That speech looked at Australia’s rising debt-to-income ratio.
“There are two key international factors that have tended to increase the ability of households in developed countries, including Australia, to take on debt over the past few decades … first is the structural decline in the level of nominal interest rates over this period, partly reflecting a decline in inflation,” she said.
These comments can’t be taken to mean anything certain with a view to the five years that would follow, leading to where we are now. However, it does suggest an orthodox belief in the tried and true way to fight inflation: central bank interest rates.
Ms Bullock also made one brief comment in the 2018 speech outlining that banking deregulation had allowed more Australians to take out loans. Whether or not she would favour such an approach in a different post-pandemic environment today remains unclear.
Ms Bullock’s prediction falls short
Ms Bullock grew up in regional NSW and progressed through her studies to acquire a master’s degree from the London School of Economics.
In an interview a decade ago, Bullock shared her belief that it would be “a while” before the RBA would have a woman govern the central bank.
Bullock recently expressed her belief that Australian full employment would peak at 4.5 per cent unemployment. That was a bad read, given that it’s currently in the 3 per cent range.
Perhaps not as bad a gaffe as Lowe’s advice to mortgage holders in the early days of the pandemic.
