Australian Treasurer Wayne Swan extended the term of Reserve Bank Governor Glenn Stevens as the government seeks stability five months before an election.
Stevens’s seven-year term was set to end Sept. 17, just three days after the election, and was extended by three years at the governor’s request, Swan told reporters in Canberra today. He named Kathryn Fagg a member of the central bank board for a five-year term from May 7, replacing Jillian Broadbent.
“The risk was that it became a political football and that would be something that was negative for markets, but this gives certainty,” said Paul Bloxham, chief Australia economist at HSBC Holdings Plc and a former RBA economist. “He’s widely seen as a strong central bank governor from a global perspective.”
Stevens, 55, lowered the benchmark interest rate by 1.75 percentage points in the 14 months through December to rebalance a two-speed economy as mining regions thrive off Chinese demand while manufacturers struggle under the strength of the local currency. Since taking the helm in 2006, he has presided over annual inflation that’s averaged within the RBA’s target range and unemployment near 5 percent as the world’s 12th-largest economy extended a recession-free era to 21 years.
“There’s no doubt that Glenn has made an enormous contribution to Australia’s economic performance and financial stability since his appointment seven years ago,” Swan said. “He is in particular recognized around the world as a key policy maker and one of the best.”
The currency was little changed after the announcement, trading at $1.0457 at 4 p.m., extending its period above parity with the U.S. dollar to nine months, the longest stretch since it was freely floated in 1983.
Under the Reserve Bank Act, the treasurer names the governor and his No. 2 for terms of as long as seven years. Opposition finance spokesman Andrew Robb had said in January that Prime Minister Julia Gillard’s government should hold off announcing the next central bank chief until after the election.
Swan’s announcement today sought to douse a succession debate that risked unsettling investors in the pre-election period. Opposition Treasury spokesman Joe Hockey said the Liberal-National Coalition should have been consulted.
A “consultative phone call” would have “removed any perception of political game playing by the government,” Hockey wrote in an emailed statement.
Earning almost A$1 million ($1.05 million) a year as governor, Stevens’s 4.25 percentage points of rate cuts helped Australia avoid recession during the global slump of 2009.
Stevens’s “intellect, integrity and calm leadership have been critical to the on-going strength of our banking system and our economy more broadly,” said Ian Narev, chief executive officer of Commonwealth Bank of Australia, the nation’s biggest lender. “We all benefit from his willingness to serve another term.”
Stevens was one of six central bankers given a top grade in a 2012 ranking by Global Finance magazine based on their ability to control inflation, achieve growth goals, maintain a stable currency and manage interest rates. It was the fourth straight year he received an ‘A’ in the evaluation.
Even so, Stevens’s term hasn’t been without controversy. The governor testified to a parliamentary panel last year as lawmakers investigate corruption allegations at the RBA’s note-printing units in the biggest scandal at the central bank since it gained independence in 1996.
The workings of the RBA are less transparent than those of its counterparts in the U.S., Japan, and the euro region, with only Stevens and his deputy allowed to speak on monetary policy issues. Stevens also doesn’t hold news conferences, unlike his peers at central banks in those areas and in the U.K., South Korea, Mexico, Chile, Peru, Colombia and Canada.
Australia’s central bank doesn’t vote on rate decisions -- coming to a decision by consensus -- and doesn’t reveal what members said at the meeting. Under his tenure, the bank did in December 2007 start releasing minutes of board meetings and publishing a statement to explain its decisions after each monthly gathering.
Swan’s appointment today of Fagg, a former senior executive at BlueScope Steel Ltd. and Australia & New Zealand Banking Group Ltd., means three women remain on the RBA’s nine-person rate-setting board. That compares with ratios of four out of 12 voting members on the U.S. Federal Open Market Committee and one out of nine on the Bank of Japan’s Policy Board.
Stevens joined the central bank in 1980 and headed several divisions before becoming an assistant governor in 1996 and deputy governor in 2001. He gained a bachelors degree with honors in economics from the University of Sydney and a masters from the University of Western Ontario in Canada.
The governor’s predecessor Ian Macfarlane was appointed to a shortened, three-year second term in 2003 at his own request, according to the then-Treasurer Peter Costello. Macfarlane and Herbert Coombs, who served an 8 1/2-year term as the bank’s first governor, are the only heads of the central bank to have served for more than seven years.
Stevens’s additional three years will allow for a smooth transition to his deputy, Philip Lowe, who became the No. 2 official at the central in February last year, said Annette Beacher, head of Asia-Pacific research for TD Securities Inc. in Singapore. Stevens served about five years as deputy before replacing Macfarlane.
Swan’s extension of Stevens’s term “eliminates any possibility of it being interpreted as a ‘political appointment,’ and should be a decision welcomed by Australian and offshore investors alike,” Beacher said.
Swan also announced he would recommend Wayne Byres as chair of the Australian Prudential Regulation Authority.