New RBA Governor Michele Bullock: What to Expect for Interest Rates

Congratulations to Michele Bullock on her appointment as the next Governor of the Reserve Bank of Australia.

When she officially takes over from Dr. Philip Lowe in September, she’ll become the first woman to head the central bank in its 64-year history.

There’s also no doubt, as Prime Minister Anthony Albanese said when announcing her appointment, that Ms Bullock is an “eminent economist”.

Treasurer Jim Chalmers went further: “Michele is an outstanding economist, but also an accomplished and respected leader.”

Michele Bullock – who’s outgoing Governor Philip Lowe’s deputy – takes over the reins at a tumultuous time at the RBA, following sustained public criticism of her predecessor, who presided over a board which imposed an unprecedented 12 interest rate increases in just 14 months.

And that was after many home buyers and investors took out big mortgages based on Dr. Lowe’s infamous advice that interest rates would remain at pandemic emergency low levels until at least 2024.

Ms. Bullock will also have to oversee a slew of internal changes at the bank, following the first government-commissioned review of the RBA’s performance in more than 40 years.

This will include new arrangements for setting monetary policy: less board meetings per year (down from 11 to 8) and supposedly more consultation and transparency surrounding cash rate decisions.

The more things change, the more they stay the same…

The big question mortgage holders around Australia want answered is what will the appointment of Michele Bullock and the impending shake-up at the RBA mean for the direction of interest rates? 

Unions and the social services sector have welcomed Ms Bullock’s appointment, saying it marks the opportunity for a “reset”.

“In the last 14 months we’ve seen 12 interest rate rises. That can’t go on,” says ACTU Secretary Sally McManus. 

As for ACOSS head Cassandra Goldie: “I don’t think that we’ve seen the rate rises that are already now locked in flow through; we haven’t seen the full effect of those yet.”

But mortgage holders, unions and charities hoping for a new approach from the RBA to setting interest rates should brace themselves for disappointment.

The ABC’s veteran Business Editor Ian Verrender puts it like this: “These changes will not affect monetary policy whatsoever.”

(ABC News24 14/7/23)

Michele Bullock “may be exceptionally bright with an almost unparalleled wealth of experience, but she has yet to learn how to perform miracles,” he says.

“Regardless of who is at the controls, the basic rules of running monetary policy go like this: If the economy is running too hot, you raise interest rates and if things begin to cool too quickly, you cut them.”

“Inflation, while beginning to slow, is still running at way above the levels the RBA would like.”

“So, don’t expect interest rate relief any time soon.”

“If rates are cut, it will be because we are in trouble, either because homeowners begin defaulting on their mortgages or if unemployment starts to rise,” Verrender says. 

The Insider

The other factor worth considering is that Michele Bullock is the ultimate RBA insider.

She’s worked at the bank for no less than 38 years.

Some analysts say her in-depth knowledge of the way the RBA operates gives her a unique perspective on how to bring about change.

Others, like Peter Tulip, Chief economist at the Centre for Independent Studies, are less generous.

“If you want a big change in the RBA culture, the way the review panel recommends, then someone who’s thrived under the old culture doesn’t seem a natural choice to implement that agenda,” he told ABC News.

Greens Senator Nick McKim, a constant critic of Ms Bullock’s predecessor, Philip Lowe, is even more scathing:

“The appointment of Ms Bullock is simply the replacement of one insider with another.” 

“Someone else who’s going to sing from the neoliberal handbook.” 

“And I don’t expect there will be any relief.”

(ABC 7pm TV News 14/07/23) 

It is also worth noting that Ms. Bullock was appointed to the RBA Board last April.

When did the RBA start the most aggressive campaign of raising interest rates in its history?

The next month – May 2022.

The simple fact is that Michele Bullock was in the room – sitting next to much-maligned Philip Lowe – as the RBA Board decided inflation in Australia was out of control and rates should be raised again and again and again…..

Don’t forget it was also Michelle Bullock who prompted howls of outrage earlier this year when she admitted that, in order to slow inflation, the RBA’s goal is to get the unemployment rate up to 4.5 percent by the end of next year – a move that would see around 140,000 people lose their jobs.

(https://aussiepropertyupdate.com.au/property-prices-and-the-r-word/)

I doubt her views have changed on that.

“Forward guidance”

One of the reasons Philip Lowe’s term wasn’t extended by the Albanese government is because of his communication skills – primarily his seeming lack of empathy for those directly affected by the RBA’s “tough love” interest rate strategy – mortgage holders and renters.

ABC Business Editor Ian Verrender says this is ironic.

“Not so long ago, Reserve Bank governors were rarely seen and almost never heard.”

“Until fairly recently, they didn’t even issue reasons for interest rate decisions.”  

As he points out, Dr. Lowe “spoke at dinners, attended forums, took questions live on television and even delivered press conferences.”

“To a certain extent, it is what led to his downfall.”

Verrender is of course referring to Dr. Lowe’s infamous statements that interest rates were likely to remain at emergency lows until 2024.

In March 2021, the RBA governor said “we are unlikely to see wages growth consistent with the inflation target before 2024.”

“This is the basis for our assessment that the cash rate is very likely to remain at its current level until at least 2024.”

Dr. Lowe continued to provide similar “forward guidance”, for the best part of a year.

It was an attempt, says Ian Verrender, “to muscle interest rates lower – as the RBA was attempting to hammer money markets into submission – and to deliberately help lift real estate prices.”

The Bad Hangover

But the RBA Board left interest rates too low for too long, and in early 2022, inflation took off.

“They were one of the latest central banks in the world to start raising rates.”

“If they had got on it earlier, we’d be in a better position today,” says noted economist Stephen Hamilton.

(National 9 News 14/7/23)

As a consequence, Philip Lowe was forced into a grovelling apology.

“I’m certainly sorry if people listened to what we said and then acted on what we’d said,” he told the Senate Economics committee in November last year when asked whether he owed an apology to the hundreds of thousands of Australians who took out mortgages on the understanding interest rates would not increase until 2024.

(https://www.smh.com.au/politics/federal/i-m-sorry-if-people-listened-to-what-we-d-said-lowe-s-sorry-excuse-for-an-apology-20221128-p5c1um.html)

The Fall Guy and the Investor

“A mild-mannered and brilliant academic, a public servant who’d dedicated his life to working for the community, he became fodder for the tabloids who revelled in the opportunity to create a lightning rod for community anger,” says ABC Business Editor Ian Verrender.

(https://www.abc.net.au/news/2023-07-15/new-rba-governor-michele-bullock-interest-rates/102602410)

Nevertheless, Verrender believes we’ll see plenty of public appearances by Michele Bullock.

But he says she will be only too aware of the fate that befell her predecessor.

Ms. Bullock  “watched it all unfold at close quarters.” 

“She may make herself more available.”

“It’s more than likely she will have learned a great deal from the experience.”

“There’s communication and then there’s talking,” he says.

(https://www.abc.net.au/news/2023-07-15/new-rba-governor-michele-bullock-interest-rates/102602410)

The Seven Network’s political editor Mark Riley also highlights one big difference between Michele Bullock and her predecessor – one which may see her “get” the pain felt by Australian homeowners, investors and renters who’ve suffered as the RBA jacked up rates again and again. 

“Unlike Dr. Lowe, she does have mortgages, a multimillion dollar portfolio, a family home and at least two investment properties,” he says.

(Seven News 14/7/23)

Now that’s not a bad thing at all.