Bloomberg News

Stevens RBA Reappointment May Be Easiest Option in Election Year

March 10, 2013

Reserve Bank of Australia Governor Glenn Stevens

Reserve Bank of Australia Governor Glenn Stevens 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. Photographer: Mark Graham/Bloomberg

Reappointing or extending Reserve Bank of Australia Governor Glenn Stevens’s term may pose the easiest political option for the government, which is trailing in opinion polls six months ahead of the federal election.

Stevens -- whose seven-year term ends on Sept. 17, just three days after the election -- is a “safe pair of hands” and early resolution of the issue would prevent it from becoming politicized, Paul Bloxham, chief Australia economist at HSBC Holdings Plc and a former Reserve Bank economist, said by phone yesterday. The 55-year-old Stevens plans to seek a second term, the Wall Street Journal reported March 8, citing unidentified people familiar with the situation.

The central bank is seeking to rebalance a two-speed economy as mining regions thrive off Chinese demand while manufacturers and retailers struggle under the strength of the local currency. Since taking the helm in 2006, Stevens 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.

“When you’re on to a good thing you should stick to it,” said Stephen Koukoulas, managing director of Canberra-based Market Economics Pty. and a former adviser to Prime Minister Julia Gillard. “I don’t think there’d be anyone who would seriously say that’s a bad appointment on either side of politics.”

A central bank spokesperson declined to comment on the succession. Treasurer Wayne Swan’s office said by e-mail March 9 that Swan had no comment on the matter. Stevens didn’t respond to a message sent outside of office hours to his e-mail address at the bank. Shadow Treasurer Joe Hockey was unavailable for comment, spokesman Tony Ritchie said.

Treasurer’s Call

The government, which has the power to either name Stevens again or announce a successor in the three months before his time is up, hasn’t openly endorsed Stevens’s reappointment.

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 said in January that Gillard should hold off on announcing the next head of the central bank until after the election.

“Resolving the question of the governor’s appointment well in advance of the election is obviously ideal,” Christopher Joye, an economist and director at funds manager Rismark International, said by phone. “The transition to a new governor is always kind of politically sensitive.”

Stevens raised Australia’s interest rates to a then-11 year high during the 2007 election campaign that brought the current government to office, prompting an apology by then Prime Minister John Howard, who lost the election and his own parliamentary seat 17 days later.

Tighter Policy

The Reserve Bank ran “tighter monetary policy than many other central banks,” Howard wrote in his 2010 autobiography Lazarus Rising. “Those interest rate adjustments were not always politically palatable.”

Howard had won the 2004 election with a promise to keep interest rates at “record lows.” With Gillard’s minority Labor government trailing the Liberal-National coalition in opinion polls, rates are now at 3 percent, matching a half-century low, after 1.75 percentage points of cuts since November 2011.

“There’s still a grudge,” among back-bench politicians from Howard’s coalition parties, Koukoulas said. “I don’t think they like him an awful lot.”

Stevens’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.

Government Support

“One would hope that it doesn’t become politicized,” said HSBC’s Bloxham. “Resolving it prior to the election would be the best way to try and achieve that.”

Stevens, whose total pay was A$986,778 in the year ended June 2012, hasn’t said publicly whether he wants to extend his tenure. Swan said in January that Stevens has the support of the prime minister and the country, while stopping short of saying the government will grant him a second term.

“He’s done a superb job,” Swan said in a Jan. 14 interview with Bloomberg Television. “His term’s still got a little way to run, so I’m not going to speculate about that.”

Stevens and his board left the overnight cash-rate target unchanged at its meeting this month and said policy is appropriate. In February, he said he’d need to be confident the currency is “seriously overvalued” before considering intervention to weaken it.

Notes Scandal

He 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 faced testimony 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.

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 contracts.

Australia’s central bank doesn’t reveal the board’s vote on interest-rate decisions and only Stevens and his deputy are allowed to speak on monetary policy issues, leaving the workings of the Reserve Bank less transparent than those of its counterparts in the U.S., Japan, and the euro region.

Closed Door

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. 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.

Three of the Reserve Bank’s nine-person interest-rate setting board are women, compared 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 (8301)’s Policy Board.

The Bank of England’s Monetary Policy Committee and the European Central Bank’s Governing Council don’t have any women on them. Just one member of the Reserve Bank’s eight-person senior executive team is a woman.

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.

To contact the reporter on this story: David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story: Anjali Cordeiro at acordeiro2@bloomberg.net


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