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Michael Pascoe: The contradictions in the new RBA governor’s appointment

There are contradictions in Jim Chalmers’ appointment of the new RBA Governor that add up to a suspicion that Treasury wants a quieter, narrower central bank – one less likely to offer any challenge to government economic policy.

There’s also been the sideshow of a perfidious Opposition Leader pulling a successful media stunt ahead of the announcement that calls into question whether the Government should ever treat the Opposition like adults again by consulting on what should be bipartisan appointments.

It also perhaps hints at the Government having trouble in the Senate with its foreshadowed RBA legislation – but I’ll come to that.

First up, not extending Philip Lowe’s term as governor is more about PR and image than substance.

It suits the government, any government, to give the impression economic success is all its own work while economic pain is all the RBA’s fault.

The media vilification of Dr Lowe amplified that impression to such an extent that the credibility of the RBA was being damaged. Perception had become reality – extending his term had become impossible.

The RBA under Dr Lowe made mistakes. Any institution of individual acting on economic forecasts will.

The one that sparked the RBA review was the allegation that the bank should have been cutting interest rates earlier and further before COVID hit. The one that dominates media headlines was the suggestion interest rates would not rise before 2024.

Overlooked is that Treasury made worse mistakes in both periods.

Designated target

It prioritised “back in black” fiscal tightening instead of growth in the first instance, ignoring Dr Lowe’s repeated calls for higher wages and greater investment.

During the crisis, Treasury provided bigger and more obviously flawed stimulus than the RBA. No clawback of unnecessary JobKeeper billions for profitable companies, $2.1 billion for HomeBuilder, most of it for people who did not need it and sparking more building-cost inflation than cheap money did.

But look over there! Philip Lowe suggested rates weren’t rising anytime soon! It’s all his fault!

The government’s alacrity is accepting all its RBA review’s recommendation reinforces that image.

And reading between the lines of what was being fed to the press gallery on Friday about governor-elect Michele Bullock, the Treasurer’s office is continuing to go hard on Dr Lowe as a scapegoat.

Treasurer Chalmers said Ms Bullock was heavily involved in the review process – she was the Deputy Governor, of course she was!

“Bullock was a most enthusiastic contributor to the RBA review and is deemed to have a more consultative leadership style than Lowe,” filed the AFR’s Phil Coorey.

“The review panel was impressed by Bullock’s insights about the Bank and possible reforms,” filed the SMH’s Shane Wright.

Michele Bullock and Philip Lowe.

“We’re fixing that damned RBA that is causing people pain – we’re getting rid of that nasty Philip Lowe who loves putting up interest rates and appointing a nice woman reformer who wasn’t happy with the way nasty Phil was running the bank either,” is what Jim Chalmers would like people to believe.

And that’s rubbish.

Governor Bullock will reflect RBA consensus and wield those nasty interest rates just like Governor Lowe has done.

If Mr Chalmers is lucky, rates might have peaked anyway, giving the false impression his change of governors played a role.

But the contradiction is that while suggesting he has appointed a nice governor, Mr Chalmers is narrowing the RBA’s focus and making it nastier.

Political imperatives

He wants to tighten the RBA’s focus and its inflation target, doing away with the softening “on average, over time” qualification for having inflation in the two-to-three per cent band and reducing the RBA’s monetary policy mandate to “price stability and full employment”, dropping the current third aim, “the economic prosperity and welfare of the Australian people”.

That’s meant to be some vague over-arching aim, but the changes add up to the RBA sticking to a narrower channel in what it might be entitled to comment upon.

(It’s worth remembering it was generally thought Dr Lowe would not have been appointed governor if Tony Abbott had remained prime minister a little longer – the Abbott/Hockey crew did not like Deputy Governor Lowe’s advice about what the government should be doing.)

So don’t expect Governor Bullock to be telling the government its public housing policy is dreadfully inadequate, that it is spending too much or too little, or that boosting defence spending comes at a cost to the rest of the economy.

And when it comes to “improved communication”, it’s not immediately obvious that Governor Bullock will prove “nicer”. Her most recent speech, Achieving Full Employment, was a shocker – as neoliberally dry as it was convoluted.

As for RBA reform, Jim Chalmers set the rules when he accepted the review’s recommendations in full without further consultation with the RBA.

Dr Lowe dutifully delivered the first package of those reforms this week. Ms Bullock will dutifully deliver the rest in time – it’s Treasury calling the shots.

Although an RBA lifer, Ms Bullock actually comes to the top job with less monetary policy experience than her internally-promoted predecessors.

While being a member of the bank’s policy discussion group, she has only been deputy governor for a year, not the more usual several, and she has not served as assistant governor economic or financial markets – the core monetary responsibility areas.

Dutton inherits Abbott’s playbook

Nonetheless, it will be her job to hold more press conferences and to wrangle the proposed new board of supposed monetary policy experts deciding interest rates – a group of independent but effectively part-time RBA mandarins who also are to be encouraged to speak publicly about policy. Have fun.

In any case, legislation will be required for the review reforms to implemented in full – and that means the Senate.

Peter Dutton’s gratuitous but successful grabbing of media attention before the Fadden election (let’s not talk about Robodebt) with comments about who shouldn’t be appointed governor again highlight his willingness to be destructive, his Abbottesque negativity.

RBA legislation could be another opportunity for the Opposition to throw a spanner in the Senate works. It’s not hard to imagine the Greens wanting more Kumbaya and less neoliberalism in any such legislation, opening the way for further unholy alliance.

For Philip Lowe, life will be much easier after September. While disgruntled Monday morning economic quarterbacks were free to criticise, he remains much more respected in his profession than he has been among tabloid newspaper editors.

And he will have achieved one of his aims: nobody has done more to promote women in the RBA.

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