Succession planning in train as extension sealed
There was always only one obstacle to Glenn Stevens getting a second term as governor of the Reserve Bank. The fact that the Securency-Note Printing Australia bribery scandal blew up on his watch. On conventional central banking criteria he was a shoo-in, and his new three-year term sets up deputy governor Philip Lowe for succession.
Stevens' reappointment will be welcomed by those in the financial markets who interact with the central bank because he has reinforced the Reserve's independence, and made its machinations less obscure.
As Lowe also recently observed, in the past three years, this economy has grown by 9 per cent, created more than 500,000 jobs, maintained unemployment at about 5.4 per cent and averaged 2.5 per cent inflation, smack in the middle of the Reserve's 2 to 3 per cent inflation target. That was achieved in the chaotic aftermath of the global financial crisis and amid the biggest investment boom and largest rise in Australia's terms of trade in history as the resources boom roared: not bad stuff on a central banker's curriculum vitae.
The Reserve was already beginning to lift the veils that shrouded it when Stevens took over in September 2006. Increased transparency is a quid pro quo for independence, which in the Reserve's case was formally recognised by the Howard government in 1996.
Stevens is, in any case, a governor who believes a central bank can do its job more effectively if what it does is understood. He underlined its independence in 2007 by announcing a cash rate increase in the middle of an election campaign for the first time in the Reserve's history, and at the end of 2007 he significantly increased the central bank's transparency by saying interest rate decisions would be revealed on the same day they were taken, explained in commentary not only when the cash rate moved but when it was left alone (as occurred on Tuesday, for example), and explained in more detail two weeks after each rate-setting meeting by the publication of minutes.
Stevens does not hold press conferences after rate-setting meetings as European Central bank president Mario Draghi does, or as US Federal Reserve chairman Ben Bernanke does less frequently, usually four times a year. Under his leadership the Reserve does, however, excel on another measure that arguably more than compensates: the number of speeches that senior Reserve officials deliver has increased roughly threefold.
There were 15 speeches in 2001, and 22 in 2006. Last year, there were 45 speeches, by officials including Stevens, Lowe, assistant governor financial markets Guy Debelle, assistant governor economic Christopher Kent and assistant governor financial Malcolm Edey. There are more central bank executives talking, and after they deliver speeches they take questions from the floor, on any topic. Audio files are posted soon after on the Reserve's website.
Those changes, the confidence in the Reserve's economic stewardship they have fostered and the role the Reserve played during and after the global crisis, as a supplement to crisis fiscal stimulus and then as a foil to it, made Stevens' claim to another term very strong.
Like his predecessor, Ian Macfarlane, he has been given three years on top of his original seven-year term. That is probably as long as is desirable or doable, and by announcing the decision now, the government has decoupled it from the election that occurs in September, the same month that Stevens' current seven-year term expires. By then it is quite possible that the Reserve will be back on a tightening bias.
The government would have taken the Securency-Note Printing Australia affair into account before giving Stevens the nod, and his marathon appearance last October before a House of Representatives committee was influential. Stevens told the committee that with the benefit of hindsight the Reserve's oversight of the two companies had not been sceptical enough.
The narrative that emerged, however, was that the central bank reviewed bribery and corruption allegations involving NPA in 2006 and 2007 and tightened up NPA's governance, but received legal advice from Freehills that laws had not been broken. Audits of the 50 per cent-owned Securency polymer film operation at that time failed to turn up similar concerns.
Stevens' comment to another committee in February 2011 that the Reserve was not aware of bribery and corruption allegations inside Securency until Fairfax Media published details in May 2009 is pegged to that timeline, and the government is effectively backing it by reappointing the governor. His economic management record is too good.