Treasury locks in secret RBA shortlist of governor candidates

A short list of candidates to fill the role of the next governor of the Reserve Bank has been provided to Jim ­Chalmers, with Cabinet to decide within two weeks.

Current RBA governor Philip Lowe. Picture: Getty Images

A secret short list of candidates to fill the role of the next governor of the Reserve Bank has been finalised and provided to Jim ­Chalmers, with a decision to be made by cabinet within the next two weeks.

The Australian understands that Treasury secretary Steven Kennedy is a frontrunner if the ­Albanese government decides to terminate the tenure of current central bank boss Philip Lowe, ­following the sharpest extreme rise in interest rates since the 1980s.

But the government is in ­danger of losing bipartisan support for the next head of the central bank, after opposition finance spokeswoman Jane Hume backed Dr Lowe to stay in the top job ­beyond the end of his term in ­September.

A decision is due before the end of July, with Treasury having provided the Treasurer with a short list of candidates that Dr Chalmers will take to cabinet within the next fortnight.

Sources have confirmed that Dr Kennedy was short-listed along with Finance Department secretary Jenny Wilkinson.

The appointment of either Dr Kennedy or Ms Wilkinson would mark the first assignment from the public service since Bernie Fraser in 1989.

A political battle is set to emerge over the bipartisan support for the role with the Coalition split over the preferred candidate.

Peter Dutton was forced on Wednesday to hose down calls from Senator Hume who suggested Dr Lowe was the best qualified candidate for the role, and that it would be a “real shame” if he was not reappointed.

Anthony Albanese at the same time praised Ms Wilkinson, saying she was doing a fantastic job as secretary of the Finance Department. The Prime Minister added: “And, of course, her and Steven Kennedy as secretary of Treasury, they’re both outstanding public servants. There are a range of ­people who will be under ­consideration, including of course, the governor himself of the ­Reserve Bank.”

The Opposition Leader said the decision of who to appoint RBA governor was for the government of the day, but added that “somebody in that role needs to be absolutely independent”.

Dr Chalmers has said a decision on Dr Lowe’s future would be made by the end of this month. The under-fire governor, who earns more than $1m a year, has made it clear he would like to stay on beyond the expiry of his seven-year term in September, but there is a wide consensus that he will be replaced.

A day after the RBA board held rates steady for only the second time in 14 meetings, Senator Hume said: “I’ve always had a ­terrific relationship with Jenny Wilkinson and I’m a great admirer of hers. However, I would say that I think that Philip Lowe has been an exceptionally well-qualified and … there’s hardly a person in Australia that would be better qualified than Philip Lowe to lead the Reserve Bank.

“I think that if he wants to ­extend his term it’s something the government should seriously consider.”

Senator Hume accused the government of “demonising” Dr Lowe for doing his job of bringing inflation back under control.

“It’s not the opposition’s call, it’s definitely the call of the government, but I think the idea that they have demonised Philip Lowe is unreasonable particularly when Philip Lowe only has one tool in the shed, and that is interest rates,” she said

Other candidates on the government’ shortlists are RBA deputy governor Michele Bullock and Dr Kennedy, potentially alongside other names such as former deputy governor Guy Debelle and Australian Statistician David Gruen, the husband of Ms ­Wilkinson.

Capital Economics Asia-­Pacific head Marcel Thieliant said Dr Kennedy as governor would “probably adopt a more dovish stance” on ­inflation than his predecessor, although he noted that the ­governor’s influence over ­monetary policy would be ­“curtailed” following the proposed creation of a separate monetary policy board at the central bank.

“He (Dr Kennedy) has recently been sounding less worried about the unanchoring of inflation expectations than governor Lowe,” Mr Thieliant said.

Former RBA deputy governor Stephen Grenville said all the candidates put forward were well qualified to do the job and their quality showed the process “hasn’t become a partisan issue”.

Appointing a candidate from outside the bank would break a tradition stretching back to 1996.

The three most recent governors – Dr Lowe, Glenn Stevens and Ian Macfarlane – were all promoted from the deputy governor role. Before that, Paul Keating in 1989 picked then-Treasury secretary Bernie Fraser to head the central bank.

An external replacement would be best positioned to ­implement the wide-ranging 51 recommendations from the Treasurer’s sweeping review into the central bank’s operations, governance and culture.

The RBA review panel report advocated that a separate monetary policy board chaired by the RBA governor but with a majority of external experts would make interest rate decisions, and would meet every six weeks, rather than every month, with each meeting followed by a press conference.

Anger at the RBA’s bungling of its “no rate hikes until 2024” guidance – among other errors that the central bank has admitted damaged its credibility – has granted Dr Chalmers a public mandate to make changes to the country’s pre-eminent independent economic institution.

As borrowing costs have soared and economists warn of a potential monetary policy-­induced recession, Dr Lowe has also been the target of sometimes vitriolic attack, including from leading union officials, for his warnings that high wages growth without a lift in productivity growth would make it harder to bring inflation under control.

Dr Lowe was appointed to the RBA board as deputy governor in 2012 by the Gillard government, before becoming governor in 2016 when the Turnbull government was in power.