RBA governor Philip Lowe axed because of politics, fund managers warn of dangerous precedent

Philip Lowe was dumped as governor of the Reserve Bank by a government looking to distract and it sets a dangerous precedent, fund managers have warned.

Philip Lowe was dumped as governor of the Reserve Bank by a government looking to distract and it sets a dangerous precedent, fund managers have said.

The government announced on Friday that Dr Lowe would be replaced by Deputy Governor Michele Bullock from September, tasking her with overseeing the RBA’s quest to tame inflation without causing too much economic damage to Australia’s $2 trillion economy.

While the appointment of Ms Bullock has been welcomed by financial markets, fund managers such as Matthew Kidman – co-founder and principal of Centennial Asset Management – said Dr Lowe was unfairly judged and warranted having his seven-year term extended.

“Lowe effectively was fired because he expressed a view that he would like to continue in the role,” Mr Kidman said.

“I see this as an overreach by the government into an institution that wasn’t broken. It’s a bad call.

“The government has politicised the whole process. It has blamed the institution to distract from what is going on around us.

“Lowe wasn’t perfect – nobody is. But I think it would have been better to carry out this whole process behind closed doors. (It) turned into a public exhibition.”

The comments were made in a survey carried out by Future Generation of selected pro bono fund managers.

The federal government had been under pressure to dump Dr Lowe for encouraging people to borrow during the Covid-19 pandemic in 2021 by saying interest rates were unlikely to rise until 2024, only to start hiking two years early in mid-2022.

RBA governor Philip Lowe outside the Reserve Bank last Friday. Picture: Monique Harmer

The RBA has since overseen Australia’s most aggressive tightening cycle on record, straining the country’s heavily indebted mortgage borrowers.

Unlike other countries, Australia has an exceptionally large proportion of mortgage holders on variable rates: roughly 70 per cent. That compares to 35 per cent in Canada, 15 per cent in the UK, 12 per cent in New Zealand and less than 5 per cent in the US, making households particularly sensitive to monetary policy.

Dr Lowe even took the extraordinary step of apologising to borrowers who had acted on his policy assurances, but the tide of public opinion had turned.

He will relinquish the RBA top job in September, and Ms Bullock will inherit the stewardship of Australia’s monetary policy at a time of economic uncertainty while also overseeing the bank’s biggest reorganisation in decades after an independent review recommended sweeping changes to the way policy is formulated.

But Ms Bullock’s job has likely been made easier by last week’s surprisingly soft US inflation reading, which has led markets to scale back expectations for how much higher Australian rates might need to go.

The market still expects rates to increase, likely before Dr Lowe leaves.

Sean Fenton, founder of Sage Capital, said Ms Bullock would face a tough job.

“They are not going to give us a magic ball. We are still going to be dealing with a world of uncertainty,” Mr Fenton said.

Dr Lowe announced last week that from next year the RBA board will only meet eight times a year, from 11 now. The new RBA governor will hold a press conference after every board meeting to explain its interest rate decision.

Oscar Oberg, portfolio manager of WAM Capital, said the changes would be beneficial to the market. “The live press conferences will provide greater insight into the rationale for the RBA’s decisions, which will be helpful for investors,” he said.

Originally published as RBA governor Philip Lowe axed because of politics, fund managers warn of dangerous precedent