Guy Debelle in line to succeed Philip Lowe as RBA governor

Amid the noise from the Reserve Bank on the outlook for monetary policy, there was also a quiet bit of succession planning going on.

Reserve Bank deputy governor Guy Debelle at the RBA’s head office in Martin Place, Sydney, in 2018. Picture: John Feder/The Australian

Amid the noise from the Reserve Bank this week on the outlook for monetary policy, there was also a quiet bit of succession planning going on.

Treasurer Josh Frydenberg on Wednesday said that RBA deputy governor Guy Debelle had been appointed for a further five-year term, putting the 54-year-old in line to succeed Philip Lowe when his term as governor ends in September 2023.

The selection of Debelle, a ­career central banker and the RBA’s second-in-command, for the top job would be a popular choice in financial markets. His contribution to the policy debate as Australia was attempting to meet the challenges posed by events like a mining investment boom and a global financial crisis are well documented.

When the dollar was in free fall during the dark months that followed the collapse of Lehman Brothers in 2008, it was Debelle directing the RBA’s intervention in markets that eventually stopped the currency’s slide and built liquidity buffers for a shaken banking sector.

Debelle, a MIT graduate in economics, has been instrumental in shepherding the economy through its first recession in nearly 30 years, brought on by the Covid pandemic in early 2020.

Australia’s fiscal and monetary policy response to the pandemic was monumental in every way, with the South Australian a major cog in determining the extent of the stimulus deployed.

Over the last year, the RBA has cut interest rates to near zero and rolled out yield curve controls targeting three-year bond yields, while engaging a quantitative easing program for the first time in the bank’s history.

For central bank watchers, it would be comforting to see the highly capable communicator and policy strategist succeed Lowe in 2023.

Such a shift would promote continuity, something markets now desire amid uncertain times of the pandemic, and the need at some point to wind back the vast amount of stimulus now propping up the global economy.

A safe pair of hands is needed, and Debelle would provide that type of leadership. It is also possible Lowe will seek and be given an extended term as governor.

Either way, things might not go so smoothly. The RBA has been the target of much criticism in recent years. Among these is that it has undershot its 2-3 per cent inflation target for many years, while some of its forecasting errors, especially during the pandemic, have been huge.

House prices have also climbed over the last decade, fanning discontent about rising debt levels and weakened affordability as property investors’ wealth booms. While the RBA doesn’t target house prices, record-low interest rates have helped create what some view as a worsening societal crisis in access to housing.

Perhaps more worrying for Debelle is the criticism from Canberra earlier this year that the central bank has become a closed institution susceptible to groupthink.

To be sure, the RBA has a long history of appointing insiders to key posts, overlooking the talent pool in academia, business and the markets. The last outsider to head the RBA was Bernie Fraser, who served between 1989 and 1996. But even Fraser was shipped in from the post of Treasury Secretary.

The insular nature of the RBA might not be tolerated if it were a public company.

Lowe has rejected these claims, arguing debates that take place around the board table involve outsiders and that the bank routinely seeks out external views. He has also pointed to outside appointments to head key departments.

Despite the criticisms, Debelle is the clear favourite to head the RBA, and markets would applaud his appointment. That’s not something to be downplayed, since the leadership of the central bank and transparency around policy making are key considerations for foreign companies weighing investment in Australia.

Still, fashions can be fickle and traditions torn down. There is some chance that the calls for a shake-up of the RBA will grow, shifting the search for the next governor away from the central bank’s headquarters in Martin Place in Sydney.