RBA Succession Should Await Election, Opposition’s Robb SaysJason Scott and Michael Heath
Australian Prime Minister Julia Gillard should hold off on announcing the next head of the central bank until after the election, opposition finance spokesman Andrew Robb said.
Reserve Bank of Australia Governor Glenn Stevens’ term expires Sept. 17, with the government having the power to either reappoint him or name a successor in the three months before his time is up. Gillard yesterday announced the election will be held Sept. 14, effectively creating an almost eight-month campaign compared with the usual time period of about a month.
“We’re in uncharted waters,” Robb said in an interview with Bloomberg Television from Canberra today. “We should work through some of these issues because normally these things in an election campaign would be put off until there is clarity about who is going to form the next government. That should apply in this case as well.”
At stake is control of monetary policy in a nation where about 90 percent of homeowners have adjustable-rate mortgages. Earning almost A$1 million ($1.04 million) a year as governor, Stevens helped Australia avoid a recession during the global slump of 2009, and a succession debate in a political campaign risks creating uncertainty for investors.
“The timing is not ideal, clearly,” said Stephen Walters, JPMorgan Chase & Co.’s chief economist in Australia. “We need some certainty around that. I’d hope we don’t get to the election and in caretaker mode and we don’t know whether Governor Stevens is continuing or someone’s replacing him. We need to get that sorted because markets do care about that.”
Robb’s Liberal-National coalition, led by Tony Abbott, is leading Gillard’s minority Labor government in polls ahead of the election. Under government conventions, the government will officially go into caretaker mode starting Aug. 12, making an RBA appointment after that date unlikely.
Stevens himself hasn’t said publicly whether he wants to extend his tenure. Since taking the helm in September 2006, he has presided over annual inflation that’s averaged 2.8 percent - - within the RBA’s target range of 2 percent to 3 percent -- and unemployment at 5 percent as the world’s 12th-largest economy extended a recession-free era to 21 years.
Treasurer Wayne Swan, responding to a question on whether he will take the opposition into his confidence when it comes to reappointing or naming a successor, said Stevens is held in “high regard” both in Australia and abroad.
“I will talk to him about his future and what he desires to do,” Swan told Australian Broadcasting Corp. television late yesterday, according to a transcript released by the treasurer’s office. “When it comes to such an important appointment of course I’ll take other matters into account. But I don’t want to start speculation about the future of the governor of the Reserve Bank, that’s got a long time to come.”
Stevens, 55, 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, he was drawn into a controversy last year as corruption allegations at the central bank’s note-printing units prompted a day of testimony to a parliamentary panel on the biggest scandal at the RBA since it gained independence in 1996.
Eight former managers and employees at the central bank’s Note Printing Australia Ltd. unit and Securency International Pty face charges in relation to the alleged bribing of officials in Malaysia, Indonesia and Vietnam from 1999 to 2004 to win bank-note printing contracts.
Stevens said in the Oct. 8 testimony that while he believed officials who reported to him acted appropriately, there should have been more questioning and “skepticism” of both companies.
Gillard and Swan expressed support for the RBA governor during the controversy.
They also spent much of last year encouraging the central bank to lower rates and stimulate the economy as they budgeted for a A$44 billion swing back to the black in time for the election.
The RBA lowered the cash rate to 3 percent on Dec. 4, matching a half-century low and brining to 1.75 percentage points the total cuts since Nov. 1, 2011. On Dec. 20, Swan announced that the government was unlikely to meet its pledge to deliver the surplus this fiscal year as weaker growth and a strong local currency curb tax receipts.
JPMorgan’s Walters said speculation about the next governor of the Bank of Japan and before that, the Bank of England, show markets do care about who’s running the central bank.
“I’d hate to see the RBA governorship tied up in the to’ing and fro’ing of what’s going to be an extended and potentially nasty election campaign,” he said.
Australian policy makers are aiming to rebalance Australia’s two-speed economy, where mining regions in the north and west thrive off of Chinese demand while manufacturers and retailers in the south and east struggle under the strength of the local currency.
Stevens and his central bank colleagues have been “very adroit” in their role shaping monetary policy, Robb said today. He said Stevens has done his job “quite admirably.”
“It would normally be a situation which is dealt with by the government of the day,” Robb said regarding the decision on reappointing Stevens or naming a successor. “Because there’s already been an announcement about an election day, so much about what happens between now and then really means the government is almost in a caretaker mode.”