Saturday, September 17, 2016

Meet Debelle and Lowe, the odd couple in charge of the RBA

On Friday nights in the late 1980s around 11 a long-haired Treasury official used to slip into the chair at what was possibly the grottiest collection of radio studios ever attached to a university campus.

2XX was built on the edge of an indoor basketball court at the unfashionable northern end of Canberra's Australian National University. The brown carpets were mouldy and coffee-stained, the programming resources were vinyl albums in blue milk crates. When it wasn't putting to air foreign language programs, it broadcast talks about Palestine, land rights and trade unions. It was known around town as the "communist radio station", except for when it played music.

In an unusually deep and resonant voice, Guy Debelle would introduce "Velvet Nights", a 90-minute homage to the Lou Reed-fronted band Velvet Underground, leavened with so-called "greasy pop" from Adelaide bands including the Spikes, Exploding White Mice and Mad Turks from Istanbul.

By day a foreign debt specialist in the federal Treasury, at night he would relive his university years in Adelaide rocking to music at the Thebarton Town Hall, the Tivoli Hotel and the Adelaide University Bar where he once lost his voice screaming as Midnight Oil played to an audience of just 100.

He wrote his thesis (on labour economics) to repeated playings of the 11-minute cataclysmic epic The End by the Doors. A science and maths student at school, he might not have studied economics at all were it not for the intervention of a family friend, Richard Blandy, an economics professor who acted as a mentor to him after his mother died of breast cancer when he was 17.

"He was casting around," Blandy tells BusinessDay. "I thought he would do very, very well in economics." His father, lawyer Bruce Debelle, who later became a Supreme Court judge and conducted a royal commission on sex abuse in South Australian schools, suggested law. Debelle told him he would prefer to have weekends.


Half a continent away and a few years earlier, a small boy with brilliant red hair, the oldest in a family of five, was blitzing two high schools in the NSW regional hub of Wagga Wagga. Philip Lowe was dux of St Michael's Regional High School, which went up to year 10, then dux of Trinity Senior High School in year 12. "He was very popular, the brainiest kid in the school – he stood out because of his red hair, if ever there was an award for maths or science he would win it," says Michael McCormack who followed him at both schools and later went on to edit The Wagga Daily Advertiser.

On graduation day his economics teacher wrote a citation. Lowe would one day be teaching his "latest brilliant theories" which would have "solved the international economic crisis".


There was more to Debelle than music. He was an extremely fast runner over 800 metres, an impressive AFL player, a swimmer and a distance cyclist. The holder of a first-class honours degree, he left the Treasury to briefly work at the Reserve Bank in Sydney before taking leave to study for a PhD at the Massachusetts Institute of Technology, inadvertently joining what would come to be known as the "MIT crew" who run the Reserve Bank of Australia. The bank's three top economists; Debelle, Lowe and Christopher Kent, who heads the economic division, obtained their PhDs at MIT. It's known for open inquiry, for taking nothing for granted, and for robust exchange of ideas.

By day Debelle worked on his thesis on inflation targeting under Stanley Fischer who later successfully steered the Bank of Israel through the global financial crisis and is now the vice-chair of the US Fed. At night in the seedier parts of Boston he checked out legendary local bands the Pixies (among his all-time favourites), Dinosaur Jr> and Buffalo Tom. He was later invited back to the MIT to lecture, and could have stayed, in such high regard was he held.


Lowe joined the Reserve Bank as a clerical assistant, moving to Martin Place in Sydney while a teenager straight out of high school. The RBA had found it hard to snare good talent so it hired promising school students early on bursaries and gave them menial work to do by day while they studied at university at night. His thesis supervisor, John Hewson, who later became opposition leader, describes him as shy and quiet, yet "confident in his own ability".

"He is not the sort of person who is going to make claims or put arguments that he doesn't actually personally believe," Hewson says. "He doesn't need to fall into line."

Lowe got a first-class honours degree and won the University Medal.

The term "moral compass" comes up repeatedly in interviews with contemporaries about Lowe, most of whom don't want even the details quoted. People go out of their way to point out that, even away from work, Lowe knows the difference between right and wrong and is prepared to stand up for it. He married a Reserve Bank colleague Jocelyn Parker, who now works at the Australian Prudential Regulation Authority.


Back at the RBA after a year at the Bank for International Settlements in Switzerland, Debelle gained a reputation for being blunt. While the divisions he ran were among the happiest, he had no compunction about telling people they were wrong.

Paul Bloxham, now with HSBC Australia, explains it this way:

"It comes down to the fact that he has already thought through a lot of the issues. What he is looking for is that next edge that someone might give him. His way of debating things is to have quite strong views, hold them, and let you convince him."

A different financial markets economist who has attended the quarterly lunches the RBA holds for fund managers, says that unlike Lowe, Debelle "doesn't hold back".

"Whereas Phil probably wouldn't even break a stride, if somebody wants to push a point that Guy thinks is wrong, he leaves the whole room in no doubt about what he thinks about that particular point of view."

Debelle found himself running the RBA's financial markets division during the 2008 global financial crisis as financial markets seized up. For a short time when it was literally impossible for foreigners to buy or sell certain Australian dollar assets. He would do enormous deals with other central banks to prise the markets back open, often juggling two phones at once, working from home through the night, and then driving in to Martin Place to use secure lines.

On the morning of October 8, in the aftermath of the collapse of Lehman Brothers, Governor Glenn Stevens prepared advice that would have seen the board cut its cash rate by double the usual amount: 0.50 points. He sought out Debelle who advised him to double it again. Rates should be cut by 1.00 points, the most since the early 1990s recession. They watched trading screens with relief as financial markets took the move as a sign the RBA was in control rather than panicking. The next month they cut again by 0.75 points and then by another 1.00, and then another 1.00. Debelle, as well as Lowe, who had approved of the cuts as head of economic research, had been right. Australia escaped a recession.


Treasurer Wayne Swan made Lowe deputy governor (one rung away from governor ) in 2012 after interviewing other internal candidates who probably included Debelle. He says Lowe is guarded, although with an inquiring mind, whereas Debelle is prepared to call a "spade a spade".

As deputy, Lowe has run much of the RBA. An insider says the deputy does the jobs the governor doesn't have time to, including managing staff.

"During his deputy governorship Lowe has taken ownership of all the tedious issues and got into the nitty gritty with staff and lived and breathed it," the insider says. "Everyone is amazed at his exceptional competence and his easygoing manner in pushing things through."

At times known as "Tintin" because of his red hair (now somewhat faded) and neat appearance, as governor from next week Lowe is likely to keep running the RBA as he has.

Bloxham says people who've read his speeches and characterise him as a hawk on monetary policy (not wanting low rates) misunderstand the transformation that takes place as a manager ascends to the top.

"It happens in all institutions, not just the Bank; you can afford to take stronger views, in one direction or the other, when you're not the final decision maker. Once you are the person who is making the call on what the recommendation should be, I think your approach gradually changes."

He says it will also happen with Debelle in his new position as Lowe's deputy.


There's thinking within the RBA that Debelle could succeed Lowe, even though Debelle, who turns 50 this month, is only a few years younger.

"The head of the US Fed, Janet Yellen, was around 70 when Obama appointed her," the source says. "Guy would be only 57 if he was to be appointed after Phil finished his seven-year term. That still leaves room for a seven-year governorship before he is 65."

And room for music. While also drawing up new rules for the financial system as head of a Bank for International Settlements committee, Debelle has managed to work punk rock references into his speeches. One concerned the 1978 Saints number: Know Your Product. The lyrics read: "Cheap advertising, you're lying, never going to give me what I want". In his role as head of the financial markets division he's had a lot to do with banks. The other was the Doors' Roadhouse Blues. The lyrics read: The future's uncertain and the end is always near." Debelle was describing forecasting. 

He plays rhythm guitar in the RBA's in-house band which he says performs only two types of numbers: "punk, and post-punk".

A recent set, attended by staff including governor Glenn Stevens, included numbers by the the Sex Pistols, the Ramones and the Clash.


Lowe also knows his music. These days McCormack is a government minister. Last year as parliamentary secretary to the finance minister he had to represent Australia at a G20 meeting in Istanbul. Lowe attended in place of Stephens. At the conclusion, for the benefit of the Australian delegation, they broke into song: the school song of St Michael's of Wagga Wagga.

It begins: "The Murrumbidgee's winding waters light the lives of Wagga's sturdy breed, like hope eternal, its waters bright flow on as our undying creed." McCormack says Lowe knew every line.

In The Age and Sydney Morning Herald