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ANGE:

From Schwartz Media, I’m Ange McCormack. This is 7am.

The Reserve Bank of Australia is getting a new governor: Michele Bullock.

Bullock was, until now, second in charge.

Her appointment comes after the controversial term of Philip Lowe - who provoked anger among the public for promising not to raise interest rates… then hiking them 12 times in just over a year.

So will a new boss at the RBA make a difference to mortgage holders? Or will an appointment from inside the bank mean nothing much will change?

Today, national correspondent for The Saturday Paper, Mike Seccombe, on the task ahead for Michele Bullock, in changing the way the Reserve Bank works.

It’s Tuesday July 18.

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Archival tape – Reporter:

“Also breaking at 8 a.m., Philip Lowe is out as RBA governor. This video, just in, of Dr. Lowe leaving home…“

Archival tape – Reporter:

“And in a move described as history making. A woman has been appointed to the role for the first time…”

Archival tape – Reporter:

“Well, her name is Michele Bullock, a trained economist and currently the deputy governor of the Reserve Bank. She will be promoted to the top job from September 18.”

ANGE:

Mike, the Reserve Bank is getting a new governor. Can you tell me about her?

MIKE:

Well, it's a historic appointment. When she starts the job in September, Michele Bullock will be the first woman ever to hold the position. She comes to the role after just 15 months as deputy governor of the Reserve Bank. But she is effectively a lifer. I mean, she joined the bank back in 1985. So she's been there for a long time. She's a country girl.

Archival tape – Michele Bullock:

“I actually don't come from the city either initially. I'm from the country, I'm from Armadale in northern New South Wales, and that was where I first started my economics career.”

MIKE:

And in an interview with her old university, she said that her country background, her public school upbringing gave her, you know, a lot of perspective on the job that she was coming into.

Archival tape – Michele Bullock:

“I've always been very grateful to my economics teachers, because they were the ones that actually instilled the interest in me.”

MIKE:

She said growing up in the country and going to UNE was a real leveller for her.

Archival tape – Michele Bullock:

“I actually ended up doing economics at University of New England. And for me it was, sort of, a path I fell into, but it was a path that once I got on it, I was fascinated with it and I really enjoyed it.”

MIKE:

And that, you know, the fact that there were country kids there, some of whom went to private schools in Sydney, but a lot of them went to state schools like she did, gave a perspective, you know, that it wasn't about where you came from or who you were, it was about what you were contributing. So that's a bit of background about the new incoming governor.

ANGE:

Yeah. And of course, Mike, the reason we have a new governor is because Philip Lowe is out of the job. And how big of a deal is it for a governor to be dropped from the role in the way that he has?

MIKE:

It's a reasonably big deal, Ange. His two predecessors — Glenn Stevens and Ian Macfarlane — were both appointed for second term, so they served ten years each. Now, he's out after about seven. So it suggests that the government wanted something to change at the RBA. Lowe had only just announced some changes to the way the Reserve Bank was going to function in the future. Those changes include less frequent meetings to set interest rates, more public accountability, i.e. press conferences to explain decisions. So there were changes on the way under him, but it appears that the government wants someone else in there to implement those changes.

Archival tape – Jim Chalmers:

“This is more about the future than it is about the recent past. And Michele Bullock, I think, as the outgoing governor has said, is a first rate appointment.”

MIKE:

And the Prime Minister, Anthony Albanese, said some nice words about Philip Lowe on his way out, that Lowe had always carried out his tasks with quote “dignity” and Albanese wished him well.

ANGE:

So Mike, we know Philip Lowe as this Governor at a time when the RBA has become very controversial after it told the public that interest rates would probably remain low, and then they hiked them again and again. What reputation did Philip Lowe have when he came into the job though?

MIKE:

Well, first thing to say, he's an RBA man through and through. He joined straight out of high school. He attended a Catholic high school in Wagga Wagga, joined the bank at 17.

Archival tape – Philip Lowe:

“I feel incredibly privileged to have the job that I have. I grew up in country New South Wales and left school in 1979 and as Tim said, went straight to the Reserve Bank.”

MIKE:

He's been a dedicated public servant really for his whole life. He's worked at the bank and with other international institutions concerned with maintaining the global financial system. He was also looked upon as being, probably, a fairly progressive appointment when he arrived.

Archival tape – Philip Lowe:

“Many of us feel that we have enough debt and we don't want to increase current consumption using borrowed money. Many of us also worry about the impact of higher housing prices on the future cost of housing for our children.”

MIKE:

So yes, coming in, Lowe has a general lack of airs and graces, I suppose, which made him popular. Wayne Swan, the Labor Treasurer who appointed him as deputy governor back in 2012, said Lowe was a good listener with egalitarian instincts, not your typically remote central banker. When he was appointed to become the next governor in 2016. He was seen as the right choice by many. Labor's Chris Bowen heralded him as one of the finest Australian economists of the generation. So, you know, he came in with a good reputation, generally well thought of across the board and particularly by the progressive side. And since then things have been on a somewhat downward trajectory.

ANGE:

So Mike, as you say, Philip Lowe was once considered this progressive pick. So how did his reputation change so dramatically during his tenure?

MIKE:

The big misstep, which was most famous, and that was back in 2021, I think it was, where he said that he didn't expect interest rates to increase until at least 2024.

Archival tape – Philip Lowe:

“Our central scenario continues to be, the condition for a rise in the cash rate will not be met until 2024.”

MIKE:

And of course, they did. They did start going up very shortly, very shortly after that, in May last year. And they've now been increased a dozen times. So that was a spectacularly wrong call. A lot of people, of course, listened to what he said, took that as a firm assurance, and they entered into mortgages and things, as a result of taking the governor at his word. You know, what followed, of course, is inflation shot up, Lowe felt that he had to hike interest rates rapidly. And a lot of those people find themselves in deep financial trouble as a result. So that was the big mistake.

More recently in May this year, he suggested that Australia's housing crisis was at least in part due to not enough people living in each house.

Archival tape – Philip Lowe:

“We need more people on average to live in each dwelling.”

MIKE:

Which is, on the face of it, a pretty obvious thing to say. But it also seemed a bit heartless under the circumstances when there were a lot of people who had nowhere to live. In June he said If people can cut back on spending…

Archival tape – Philip Lowe:

“If people can cut back on spending or find additional hours of work, that would put them back in a positive cash flow position.”

MIKE:

Well, yeah, of course it would. But it's, just… once again sounds a bit unsympathetic. So that's part of the reason for his decline in popular opinion.

The more relevant criticism, I think, is the widely held one among economists, including the new assistant minister for the Treasury, that's former economics professor Andrew Leigh, is that Lowe’s mistakes go back further than that. They go back to the fact that the Reserve Bank under him kept interest rates too low in the pre-COVID years. That is, you know, 2016 to 2019 roughly, and then did not raise them fast enough when the COVID lockdowns had passed, and inflation started becoming a problem. So, that's the criticism from the economic experts, is that essentially they were too slow to act. And of course, the consequence of that is that when we came out of the pandemic, you know, inflation happened, and their tardiness probably made the situation worse.

ANGE:

So there's the comments he made about not raising interest rates, or about people needing to work more or spend less... but why else was Philip Lowe so disliked?

MIKE:

So Lowe has a couple of other things that I think have played against him, and they're entirely presentational.
He has an unfortunate tendency to smile when he shouldn't, you know, so he'll be under grilling from senators and interviewers, and there will be a little smile playing around his lips as he's delivering bad news. I think this is just a personal tic, but it doesn't look good. Another presentational thing, I think you would call it, is that two days after the board announced its ninth consecutive interest rate hike this year, he went off to speak to a private meeting of investment bankers before the bank published the reasons for the rise. Now, there's nothing improper in that necessarily, but it did look like he was talking to the big end of town before he talked to the ordinary people. So yeah, Ange I think these missteps may have contributed to the end of his tenure.

But the truth is that there were bigger concerns with the RBA, and with its culture, and with the makeup of the board. And tackling those changes is now the problem for Michele Bullock as she replaces Philip Lowe.

ANGE:

We’ll be back after the break.

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ANGE:

Mike, let's talk about the job ahead of Michele Bullock. She's facing, as you say, all the same economic challenges as Philip Lowe. What's she going to have to change about the way the RBA works?

MIKE:

Well, the bank has been riddled with problems for a while now. To give one example, and probably the most relevant example, as things stand, five of the nine members of the board have no expertise whatsoever in setting monetary policy. There hasn't been enough economic experience on the board in the view of many. So earlier this year the government completed a review of the bank, and it was the first in decades. It had 51 recommendations for changes in the way it sets rates. And I think the major one there was that the bank should in future have two boards instead of one. The existing board, which would look after the governance of the bank, and a new board filled with experts, would now meet with the governor to set interest rates. And I think actually this is probably more significant than the change in governorship itself. As I said, the board was heavily stacked with people with no particular expertise.

So last July, ahead of the RBA review, I wrote a piece in which I spoke to a number of very well credentialed economists who saw this structure of the board as a big problem. Saul Eslake, for example, very well regarded economist, kind of caricatured the board. He said and I'm quoting, “It's almost like if you know something about monetary policy, you're disqualified from membership of the board.” So that was Saul’s take. Another former member of the RBA board, ANU economics professor Warwick McKibbin, said that in his experience, board members did not often enough challenge the wisdom of the RBA governor and deputy, and in fact didn't really have the wherewithal to do so. So, those two economists were among a number who wrote an open letter calling for change. And of course this change is now on the cards. So the hope, I guess, is that it creates a culture where the governor is more challenged, where board members can bring various analyses to the table, and maybe will come to better decisions about interest rates and the direction of the economy.

ANGE:

And Mike, I want to talk about the approach of choosing RBA governors from within the RBA because that's, you know, Philip Lowe was very much a man from within the RBA. He was a lifer, as you said. But also this historic appointment of Michele Bullock. She has a very similar CV. She's also someone from within the bank. So is this a case of the government wanting a new face for this overhaul, but not really wanting too much change? Because if they did, they could have actually appointed someone from outside the RBA, couldn't they?

MIKE:

Yes yes, they could. In fact, a number of commentators were suggesting the government should look overseas. There was also speculation the government could look outside the bank, but still within the bureaucracy, you know, there was speculation about moving the secretary of Treasury or the secretary of finance across to run the bank, but instead the government just took essentially the next cab off the rank at the RBA. You know, they got the number two person to replace the number one person. And so, you know, clearly, I think this has to be seen as a pretty conservative choice. We should never forget that, as Deputy Governor, Michelle Bullock was party to all those decisions, those dozen decisions to raise interest rates. She's also on the record as saying that unemployment must rise to 4.5% to bring down inflation. Well, it's now 3.5, so she's effectively suggesting a couple of hundred thousand people must lose their jobs to get inflation under control. So, you know, I don't think we expect to see an awful lot of change in direction from the bank under her.

ANGE:

And so you're saying she's a conservative choice, a safe choice, perhaps. How has Michele Bullock's appointment been received more broadly by experts? What's her reputation like?

MIKE:

Well, it's been generally pretty good. I mean, Lowe himself described her as a first rate appointment, but I guess you'd expect that. There's been, perhaps, lukewarm praise, but there hasn't been a lot of criticism. The opposition has fallen in behind the decision and indeed, in the political sphere, just about everyone except the Greens think it's an acceptable appointment. The Greens, of course, have been opposed to the ratcheting up of interest rates for quite some time, saying that, you know, it's hitting little people too hard and they rightly, I think, see Bullock as on exactly the same trajectory as as Lowe was.

ANGE:

People listening who have seen their rent or their mortgage go up recently might feel hopeful that a change of governance will mean the pain of rising interest rates is over, or that it might be less brutal in the future. If the bank can't meet those expectations, though. What impact would that have on the bank's reputation and the government who made this appointment?

MIKE:

Well, yeah, I think it could be a problem for the government. And I might say I think, also that, you know, notwithstanding his mistakes, Phil Lowe was to some extent a sacrificial lamb here. You know, the punters are unhappy. They want someone to be accountable for the pain they're feeling. And so the government picked Lowe kind of as the fall guy. But of course, it does pose a risk for the government. You know, the old joke goes that an election is a democratic process by which people decide who will get the blame. So it doesn't matter that the current economic circumstances really have very little to do with what the current government has done. They’re largely due to international forces, COVID, the war in Ukraine, etc. and a tiny bit to do with the RBA's slowness in adjusting. Nonetheless, the Albanese government will take heat and furthermore, Australia is not out of the economic woods yet.

You know, inflation has softened, but there is a risk of recession. It's also possible we could have at least a couple more rate rises in the pipeline. I mean, I'm not predicting, but some people seem to be. And there are also suggestions that interest rates could be on the way down again by the time of the next election. And I think that the current government will be desperately hoping that that's the case.

ANGE:

And just finally, Mike, there's going to be a number of changes at the bank, there’s these two boards, more communication with the media through these press conferences. And, of course, the new governor, Michele Bullock. But practically, will the average mortgage holder in Australia, do you think, notice any difference?

MIKE:

Not in the immediate term. I don't think. I mean, I think we're kind of set on the course we're on and circumstances mean that we can't really change. Perhaps in the longer term, though, I mean, if these changes go through and we do actually get better and more timely decisions coming out of this new board, you know, in the longer term, that's good news for everybody.

ANGE:

Mike, thanks so much for your time.

MIKE:

Thanks, Ange.

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ANGE:

Also in the news today…

The referendum essays from the Yes and No side will be published online today by the Australian Electoral Commission.

The essays – which are 2000 words written by politicians – will also form the basis of a referendum pamphlet that will be mailed to all households several weeks before the vote, which will be held sometime in the final three months of 2023.

And

The Senate committee investigating consultancy firms — triggered by the scandal involving PwC misusing confidential tax policy information — has been continuing this week.

Yesterday the former ACCC boss, Allan Fels, called on the government to break up the consulting sector, saying that governments' increased reliance on consultants had handed the major firms too much market power.

I’m Ange McCormack, this is 7am, I’ll see you tomorrow.

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