Much like interest rates, the future of Reserve Bank governor Philip Lowe is teetering on a knife’s edge heading into September, with the federal government mulling whether to replace the controversial central banker or extend his term.

In a decision due this month, Cabinet will decide whether Dr Lowe should see out the record breaking cycle of interest rate hikes kicked off under his leadership or whether a fresh face should take the reins amid fears the economy is lurching closer to a full blown downturn.

Economists are currently foreshadowing the possibility of two more interest rate hikes that would add another $154 to typical monthly mortgage repayments starting from August.

It all comes as Finance Secretary Jenny Wilkinson emerges as the frontrunner to replace Dr Lowe, though the current RBA boss received support from unlikely quarters last week when shadow finance minister Jane Hume declared his term should be extended.

Should Dr Lowe be replaced it would bring an end to one of the most consequential and controversial RBA governor terms in Australian history, marred by decisions made during the COVID-19 pandemic that have courted praise from government, but the ire of the public.

Philip Lowe: Fall from grace

Dr Lowe’s fall from grace with Australian families began in May 2022, when the RBA started what would become a record-breaking series of interest rate hikes to curb spiralling inflation.

The move was clouded by a perception that Dr Lowe had promised families during COVID lockdowns that interest rates would not rise until 2024 and the anger that ensued was visceral.

The RBA never actually said rates would not rise until 2024, but the finer details never mattered, and with rates rising rapidly, palpable frustration has continued to build with the RBA boss.

After all, 12 interest rate hikes since May 2022 have now added more than $1300 to monthly repayments on a typical $500,000, 25-year home loan – squeezing millions of families.

The fallout led Treasurer Jim Chalmers to unveil a review of the central bank in July last year, which earlier in 2023 handed down scathing findings about the RBA’s COVID communications.

But while that review recommended tinkering with the structure of the RBA board, it didn’t hand down findings against Dr Lowe, who has been praised by mandarins in Canberra for his role in shepherding the economy through its biggest economic shock in almost a century.

The RBA’s decision to nail interest rates to the floor and pursue an ambitious program of quantitative easing that included buying billions of dollars in government debt had, on review, helped Australia get through the most difficult years in more than a generation.

But in hindsight, even Dr Lowe has admitted that the RBA took out too much insurance against the pandemic, helping fuel a wave of inflation that the country is still trying to cope with today.

Replacing the RBA boss?

With the federal Cabinet due to decide this month whether Dr Lowe will keep his job, speculation is rife about who might replace him, with many qualified candidates in the wings.

Aside from Dr Wilkinson, who Sky News reported last week has emerged as the frontrunner, there are current RBA board members who could take up the top job.

Dr Wilkinson would be the RBA’s first female governor if appointed. Photo: Dept of Finance

They include current Treasury Secretary Steven Kennedy, who was appointed under the Morrison government, but has gained the respect of Labor for his role in helping develop and roll out the JobKeeper program during the pandemic.

Michelle Bullock, who was promoted to deputy governor at the RBA last year and has since taken a key role communicating the central bank’s policies at public appearances, is also in the running for the top job.

If Dr Wilkinson or Dr Bullock got the role they would be the first female RBA governor in Australian history.

Dr Lowe’s term as RBA governor officially expires on September 17, although it is possible that he might be re-appointed for up to another seven years.

Such a move has been backed by the Opposition, with Senator Hume last week suggesting that continuity at the RBA should be the priority of the federal government.

“He is certainly well qualified to stay in the position,” she said.

“Now that said, there are some very interesting names on that list, the most important thing is that the governor of the Reserve Bank remains independent from the government of the day.”