Mistakes were made by most central banks around the world

Anthony Albanese, incoming RBA governor Michele Bullock and Treasurer Jim Chalmers speak during a meeting at Parliament House in Canberra on Friday.

In normal circumstances, the appointment of the Reserve Bank governor would be dealt with in the financial pages of newspapers – it wouldn’t be front page news. Indeed, the reappointment of the incumbent governor had almost become the norm – think here Ian Macfarlane and Glenn Stevens – so there tended to be very little discussion of the matter.

But we live in different times, times that are much more economically challenging because of the outbreak of inflation.

There is no doubt that Phil Lowe made some serious errors during his term as governor; in particular, the forward guidance he gave, starting from late 2020, that interest rates were unlikely to increase before 2024.

The bank also overdid the monetary stimulus provided during Covid, in turn contributing to the build-up of inflationary pressures, and was slow to lift interest rates.

Having said, mistakes were made by most central banks around the world.

For various reasons, some valid and others not so, Lowe was never likely to be reappointed by this government. The 12 interest rates rises implemented by the bank, plus his frank discussion of the danger of wage increases not backed up by productivity growth, made him a very unpopular figure in the Labor Caucus.

But Jim Chalmers always needed to view the appointment of a new governor in a wider context.

The appointment of current deputy governor, Michele Bullock, is a welcome one. She has had a long history working with the bank, undertaking a range of roles.

She clearly understands the intricacies of central banking; she is an able public performer. The fact that there was a woman of such distinction and background to fill the role of governor is a boon to the country.

The government was also wise to steer clear of appointing a senior bureaucrat to the position – the names of Treasury Secretary Steven Kennedy and head of the Department of Finance, Jenny Wilkinson were in the mix of candidates.

Perceptions of independence matter a great deal for this appointment. But a deep knowledge of central banking is also critical.

Of course, Bullock’s appointment does not change the key challenge facing the bank – to get inflation back to the target range of 2 to 3 per cent per year as soon as possible without crashing the economy.

There is still a possibility that the cash rate will be lifted again; her appointment doesn’t alter this fact.