The winner of Australia’s election on Saturday will have the rare opportunity to re-shape the leadership of the central bank, with almost the entire board coming up for reappointment in the next three years.
The terms of eight of the nine Reserve Bank of Australia (RBA) board members, including the governor, expire between December and late 2013, leading to talk that the next government could be tempted to pick ideological allies for the posts.
Neither side of politics have commented on such a sensitive topic, but the make-up of the next RBA board is arguably more important to the economy than the make-up of the next cabinet and different governments can make different appointments.
“The governor is the job that really matters and it’s not too hard to think that the choice might be different, depending on what political stripe the government was,” said Rory Robertson, an interest rate strategist at Macquarie Bank.
The centre-left Labor government is locked in a tough electoral struggle with the conservative opposition, with opinion polls pointing toward a cliff-hanger result at the weekend.
In practice, the central bank’s independence is now so firmly entrenched amongst the public and so prized by investors, that only the most foolhardy Treasurer would risk the markets’ ire with an appointment that was considered blatantly “political”.
“There would be an uproar if there was even the slightest suggestion of political bias in the choices,” said Rob Henderson, head of markets economics at National Australia Bank.
“The government’s economic credibility would be called into doubt, and both parties value that very highly.”
Joe Hockey, the treasury spokesman for the conservative opposition, recently said he had spoken to RBA Governor Glenn Stevens to assure him they supported the central bank’s target of keeping inflation within a two to three percent band over the medium term.
Stevens’ first term ends in September 2013, just within the life of the next three-year parliament.
Henderson felt Stevens would be certain to be re-appointed for a second seven-year term, assuming he wanted it.
The career central banker has been credited with helping Australia avoid recession during the global financial crisis, cutting interest rates by a massive four percentage points between September 2008 and April 2009.
The RBA is also assumed to be grooming successors in-house, notably the head of its economics unit, Philip Lowe, and the head of the markets division, Guy Debelle.
“It would be a kick in the guts for the RBA if they offered such well-qualified candidates and the government turned them down for their own pick,” said Henderson.