Alison Watkins and Carolyn Hewson to join RBA board
Alison Watkins and Carolyn Hewson have been appointed as members to the Reserve Bank board.
Coca-Cola Amatil chief executive Alison Watkins and former investment banker and current CSL director Carolyn Hewson have been appointed as members to the Reserve Bank board.
The two have been appointed for five-year terms following the recent retirement of former Macquarie Group chief Allan Moss and EnergyAustralia chief executive Cath Tanna from the board.
The appointments of Ms Watkins and Ms Hewson would help ensure that monetary policy continued to support Australia’s economic resilience and prosperity through the recovery phase of the COVID-19 pandemic and beyond, Josh Frydenberg said in a statement.
Their appointment comes as the official cash rate remains at a record low 0.1 per cent in the wake of the COVID-19 pandemic as the central bank attempts to fire up the economy.
Ms Watkins’ term is due to start after Mr Moss’s term concluded early this month.
Ms Hewson’s will start after Ms Tanna’s term ends on March 29 next year.
Ms Hewson has more than 35 years’ experience in the finance and energy sectors. She is currently a director of CSL and Infrastructure SA, and a former director of BHP, BT Investment Management and Westpac, and has served as a panel member of the Financial System Inquiry.
Ms Watkins, as the group managing director of Coca-Cola Amatil since 2014, is well placed to gauge the health of the retail sector at a critical time for the central bank.
She has held a range of senior roles in the agriculture and banking sectors, is a current board member of the Business Council of Australia and a non-executive director of The Centre for Independent Studies. She has previously served as a member of the Takeovers Panel.
“It couldn’t be a more important time to be appointed to the central bank,” the Treasurer said.
The appointments come amid what is arguably the most challenging policy backdrop for the RBA as the coronavirus pandemic and unprecedented restrictions on movement caused the deepest recession since WWII, although it was cut short by unprecedented fiscal stimulus.
After failing to achieve its 2-3 per cent inflation target for several years and eschewing quantitative easing as a means of stimulating economic activity and lowering the unemployment rate enough to lift wages growth to get inflation back above 2 per cent, the RBA went all-out last month.
While RBA governor Philip Lowe has maintained that negative interest rates remain “extraordinarily unlikely”, the RBA committed to buying $100bn of commonwealth and state government bonds over a six-month period, as it also cut key interest rates including its official cash rate and three-year bond rate targets to record lows of 0.1 per cent.
The RBA has also been challenged by a resurgent exchange rate. The dollar hit a 30-month high of US75.97c on Thursday as a surge in full-time jobs drove a 90,000 rise in jobs last month (more than twice expectations), pushing the rate of unemployment down to 6.8 per cent, the lowest level since April.
The central bank has argued that the dollar would be higher still if not for its actions.
Australia’s mid-year fiscal and economic outlook projected a budget deficit of $197.7bn for the 2020-21 fiscal year, well below the consensus estimate of $204bn and the budget estimate of $214bn.
At its meeting this month, the RBA reiterated that given the outlook for employment and inflation, monetary and fiscal support would be required for some time, and that for its part, the board would not increase the cash rate until actual inflation was sustainably within the 2-3 per cent target range.
“For this to occur, wages growth will have to be materially higher than it is currently,” the RBA said.
“This will require significant gains in employment and a return to a tight labour market. Given the outlook, the board is not expecting to increase the cash rate for at least three years.
“The board will keep the size of the bond purchase program under review.”
Indeed, with interest rates near zero and the RBA firmly against negative rates, the key focus of monetary policy next year is whether or not the RBA extends its quantitative easing.
Westpac chief economist Bill Evans expects the RBA to extend its QE program with another $100bn purchase in the six months following June next year.
In 2022 he expects the QE program will be reduced to two $50bn tranches and the target rate on the three-year bond rate will be gradually lifted through the year.
“The RBA will also be making its decision on the extension of the program in the context that other central banks are continuing to expand their balance sheets,” Mr Evans said.
He said that by mid-2021, despite a much more positive growth and risk environment, central banks would still assess that they have “major challenges in reaching their inflation targets and will be continuing to expand their balance sheets given they have no flexibility on short-term interest rates”.
The RBA would also be mindful of the direct cost to Australian governments of rising bond rates.
“We expect bond rates will be rising steadily next year and the RBA will be concerned to influence the margin between AGS/semi government bond rates and those of other countries,” Mr Evans said.
Westpac has forecast that the dollar will rise to US80c next year. Mr Evans warned that there was a risk that the RBA would assess US80c as being “overvalued”.
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