Economists commend decision, confirm forecasts
Michele Bullock taking the mantle as the RBA’s first female governor will provide a sense of continuity and a strong example for other leaders to follow, leading economists say.
Currently deputy governor of the Reserve Bank of Australia, Bullock will step into the role of governor on September 18 for a seven-year term, replacing Philip Lowe.
Her appointment comes at a challenging time for the RBA as it continues to battle high inflation, having pushed up the official cash rate 12 times since May 2022.
Bullock will be the RBA’s ninth governor. The first woman to head Australia’s central bank, her appointment follows a career with the RBA spanning 38 years, where she started in 1985 after graduating from the University of New England.
Commenting on her appointment, Bullock said earlier this month that she was “deeply honoured” to have been appointed to the position.
“I am committed to ensuring that the Reserve Bank delivers on its policy and operational objectives for the benefit of the Australian people,” she said.
ANZ senior economist Adelaide Timbrell (pictured above left) said that as a skilled and educated economist, Bullock would provide a good sense of continuity for the RBA’s monetary policy approach.
Diversity of thought and perspective is key to any big policy decision, and Bullock has already in those conversations, she said.
“As much as it’s great to see the first female RBA governor, she is not just a woman – she’s a very educated economist and will be great for the role,” Timbrell said.
AMP senior economist Diana Mousina (pictured above right) commended the federal government’s decision to appoint Bullock, acknowledging that it was important for the role to be given to someone from within the Reserve Bank who understood the workings of monetary policy.
Mousina’s only hesitation was that she didn’t necessarily agree that Lowe should be replaced before the end of the current hiking cycle.
“I think [Michele Bullock] will provide a sense of continuity for the current cycle, which is important because we don’t want to see inflation expectations get out of hand with the change of leader,” Mousina said.
She acknowledged Bullock’s longstanding track record at the RBA, including regular speeches in which she discusses the economy, and her appointment to senior positions including deputy governor in April 2022, as well as deputy chair of the Reserve Bank Board and of the Payments System Board.
Commenting on Bullock being the first female RBA governor, Mousina said that hiring decisions should always be based on merit.
Senior females in positions of power have been known to face roadblocks, from ASX-listed companies through to government, and Bullock’s appointment is a great signalling effect, she said.
Noting that female enrolments to study HSC economics lagged behind males, Mousina said that females did not receive equal representation.
“It shows that females can do the job and it provides [younger women] with some sense that ‘I could potentially do that job’,” Mousina said.
Are further rate hikes expected this cycle?
Ahead of confirmation from the government that Bullock would take the head role, ANZ updated its cash rate forecast, which Timbrell said had not changed following her appointment.
“ANZ research is now expecting an extended pause from the Reserve Bank [with] no moves for the remainder of the year,” Timbrell said.
The bank expects the first rate cut to occur in late 2024, marking the start of an easing cycle for the Reserve Bank.
AMP is expecting the official cash rate, currently 4.10% to increase a further one or two times, with a potential peak of 4.6%, Mousina said. She noted a degree of uncertainty around the likelihood of a second hike, which she said would become clearer after the release of June quarter inflation data and labour force data, and subsequent changes to RBA forecasts.
While there’s a significant chance of one more hike, whether there will be two is a “line ball call”, she said.
“Based on what they’ve been saying recently around the risks to the economy and watching the lags from prior rate decisions, the Reserve Bank do seem to be more open to holding [it] steady rather than hiking rates again,” Mousina said.
After 12 official cash rate hikes, Mousina acknowledged that there was a higher level of negative sentiment towards the central bank, which the RBA may take into account.
Before he steps down as RBA governor, there is potential for Lowe to want to “get the two hikes in” and finish the hiking cycle, Mousina said.
Reduction in meetings considered positive
Commenting on the planned reduction in the number of RBA meetings from the current 11 per year, to eight, Timbrell acknowledged that fewer meetings would allow the RBA more time to understand what was occurring within the economy before announcing OCR decisions.
“Eight meetings a year is more in line with other central banks globally,” Timbrell said.
While the reduction in meetings was not expected to have a significant impact on the turning points of monetary policy, Timbrell acknowledged that the change may create slightly different approaches over the long term.
Mousina said that there were pros and cons to reducing the number of RBA meetings. On the positive side, the RBA will have more time to collect and analyse information and data before each meeting.
On the counter side, one of the advantages of the RBA meeting each month (except in January) is that they remain consistently in the public eye.
“At a time when we’re trying to keep inflation expectations down, and reminding people that interest rates need to go higher to get inflation down and growth lower, if you’re not in the public face enough, people may forget,” Mousina said.
In her role as governor, Bullock will be responsible for continuing to uphold the RBA’s mandate around stability of currency, maintaining full employment and economic prosperity and welfare of people in Australia. This includes bringing inflation (currently 5.6% according to the May CPI indicator), back to its target range of between 2% and 3%.
Announcing Bullock’s appointment on July 14, the RBA said that the role of governor held several responsibilities, including Chair of the Reserve Bank Board, the Payments System Board and the Council of Financial Regulators.
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