Treasurer Scott Morrison just announced Dr Philip Lowe as the new RBA governor.
He’ll replace Glenn Stevens, who has been head of Australia’s central bank for a decade. Lowe will serve a seven-year term starting in September this year.
Lowe’s appointment comes just two days after the RBA dropped the cash rate to a record-low 1.75% in an attempt to combat the falling rate of core inflation confirmed in recent data.
His appointment also comes at a crucial juncture for the RBA. As is the case in advanced economies around the world, Australia’s central bank and its decisions have become arguably the most important stimulus lever available in managing the health of the economy.
Lowe has been RBA deputy governor for the past four years under Stevens, and has been widely canvassed in financial circles as the potential next governor for some time.
He has a record of offering frank and fearless assessments of economic and financial challenges in his public statements. In November 2014, Lowe used a speech titled Building on Strong Foundations, to jawbone the dollar, taking aim at the nation’s pessimism and urging everyone to perk up, while also saying the dollar needed to drop.
Lowe wanted Australians to recognise how good they’ve have had it in the last decade saying “we had got used to consumption growing more quickly than income. We had also got used to asset prices, credit and fiscal revenues growing more quickly than income. We had got used to employment increasing more rapidly than the working-age population. And we had got used to growth in our real incomes outpacing the rate at which we were improving our productivity.”
The speech worked and the dollar fell.
Lowe warned in another speech last year that monetary policy could not be relied on as the cure for all the ills in an economy.
“At the end of the day, the solution to the problems caused by the disconnect between the desire to save and the desire to invest cannot lie with monetary policy,” he said. “Instead, it lies in measures to improve the investment environment so that once again there is strong productive demand for the use of our societies’ savings.”
He grew up in the NSW farming town of Wagga Wagga and first joined the RBA in 1980. He completed a doctorate at MIT in 1991, under the supervision of Nobel prize-winning economist Paul Krugman.
According to a 2011 profile of Lowe in Fairfax Media, it was during a period working at the Bank for International Settlements that Lowe “made his mark”.
In a paper co-written with BIS economist Claudio Borio, Lowe argued that even when inflation was tame, central banks should be wary of allowing low interest rates to fuel asset-price booms.
It was a controversial view. In the US, the prevailing wisdom and opinion of the then-chairman of the Federal Reserve, Alan Greenspan, was that price booms were not the main concern of central banks. But Greenspan’s low interest rate approach was discredited by the US housing collapse.
Lowe has also challenged the business community, arguing a year ago that investment hurdles are sometimes too high and Australian companies needed to lower them.
“In today’s environment, it seems that many investors have, reluctantly, come to accept that they will earn lower yields on their existing assets. An open question though is whether the same acceptance of lower returns is flowing through to firms’ decisions about the creation of new assets – that is, their own investment plans?” he said.
Lowe has also been vocal about lending standards in Australian banks during the property boom. Last November, he shared the RBA’s concern after inquiries on mortgage lending led to banks revising upward their total level of lending by a staggering $50 billion.
“While the reasons for some of these earlier errors have been identified, in other cases the reasons are unclear and lenders have not been able to provide comprehensive back data,” he said. “As lenders have looked more closely, what they have found has surprised and, to some extent, concerned us.”
The announcement from Morrison is below.
I am pleased to announce the appointment of Dr Philip Lowe as the Governor of the Reserve Bank of Australia (RBA) for a seven-year term from 18 September 2016.
Dr Lowe brings a wealth of knowledge and experience to the role of Governor, having served as the RBA Deputy Governor since early 2012, heading up many of the RBA’s analytical departments, and publishing on a wide range of issues relevant to the operation of monetary policy over his three decade career with the RBA. Dr Lowe also served as Head of the Financial Institutions and Infrastructure Division at the Bank for International Settlements (2000 – 2002), where he authored important research on the financial stability role of central banks in low-inflation environments.
Dr Lowe earned a PhD in Economics from the Massachusetts Institute of Technology after being awarded the University Medal for his undergraduate studies in economics at the University of New South Wales. Dr Lowe is well regarded in the central banking community, financial markets, and the Australian business community, and will reinforce existing confidence in the institution.
I congratulate Dr Lowe on his appointment and also thank Mr Glenn Stevens for his valuable leadership of the RBA over the past ten years. International developments required Mr Stevens to steward the RBA through a challenging decade for the Australian economy, which included the global financial crisis, the passing of a once in a generation terms of trade boom, and the rise and fall of an unprecedented mining investment boom. The Government thanks Mr Stevens and his staff for the role they played in helping the Australian economy navigate these significant challenges over the decade.
I am also pleased to announce the appointment of Professor Ian Harper as a part-time member of the Reserve Bank Board for a five-year term from 31 July 2016.
Professor Harper’s combined experience in public policy development and academia will enable him to make a strong contribution to Reserve Bank Board deliberations. Professor Harper recently Chaired the Competition Policy Review (Harper Review), served as a member of the Financial System Inquiry (the Wallis Inquiry), and was the inaugural Chairman of the Australian Fair Pay Commission.
Professor Harper also brings strong academic credentials to the Reserve Bank Board, having spent two decades as a Professor at the University of Melbourne – first as the NAB Professor of Monetary and Financial Economics (1988–1992), then as the Ian Potter Professor of International Finance (1992–2002), and the Sidney Myer Professor of Commerce & Business Administration (2002–2008) at Melbourne Business School.
Professor Harper’s term on the Reserve Bank Board coincides with the conclusion of Dr John Edward’s term on 30 July 2016. Dr Edwards has made an important contribution to Reserve Bank Board deliberations through a challenging period for the Australian economy and I thank him for his service. I wish him every success for the future.
The appointment of Dr Lowe will create a vacancy at the Deputy Governor level in the RBA, the filling of which will be considered in the second half of the year.
These appointments were made in accordance with the relevant provisions of the Reserve Bank Act 1959 (the Act). Under sections 14 and 24 of the Act respectively, the Treasurer appoints Reserve Bank Board members and the RBA Governor.