The Reserve Bank of Australia has a new leader but the internal pick is unlikely to stray far from her predecessor's path when it comes to setting interest rates.
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Philip Lowe will be replaced by Michele Bullock when his seven-year term finishes in September, making her the first woman to head the central bank in its 63-year history.
Ms Bullock has served as deputy governor since April 2022 after a near four-decade RBA career, which has included several senior positions.
Prime Minister Anthony Albanese said Ms Bullock was "eminently qualified".
"Michele will be in an important job at an important time with the challenges we face globally," he said on Friday.
Ms Bullock said she was deeply honoured to be appointed.
"It is a challenging time to be coming into this role but I will be supported by a strong executive team and boards," she said in a statement.
The prime minister thanked Dr Lowe for his service, particularly for his efforts to support the economy during the COVID-19 pandemic.
The government considered a shortlist of candidates that included Ms Bullock, Treasury secretary Steven Kennedy and Finance secretary Jenny Wilkinson.
Treasurer Jim Chalmers said Ms Bullock represented the best combination of experience and expertise along with a fresh leadership perspective.
"This is the right call but it's not an easy call," he said.
The treasurer said Dr Lowe's term was ending with respect, gratitude and dignity, noting that extending an RBA governor's tenure was an "exception rather than a rule".
Dr Lowe was at the helm of the bank throughout the turbulent pandemic period but it was during the recovery phase that his leadership landed him in hot water.
His prediction interest rates would stay on hold at low levels until 2024 attracted criticism after the RBA lifted rates much earlier in response to fast-rising inflation.
The governor later apologised for not adequately communicating the caveats attached to his guidance.
Dr Lowe has also been in the top job throughout an independent review and has confirmed the bank will act on most of the recommendations.
Ms Bullock will have the challenging job of steering reform as well as the unfinished task of returning inflation to target.
Inflation has passed its peak but was still growing at 5.6 per cent annually in May, well above the two-three per cent target range.
Most economists agreed borrowers could expect to see a continuation of monetary policy decision-making, with Ms Bullock involved in all the meetings in the present tightening cycle.
UNSW Business School associate professor Mark Humphrey-Jenner said none of Ms Bullock's communications to date suggested her views deviated much from those of her predecessor.
He told AAP the tightening cycle will likely have ended by the time she takes the reins, and her first test as leader will be determining how long to keep interest rates high before cutting them.
Former treasury official and economist Steven Hamilton said Ms Bullock was the best option but there was a valid argument to bring in an outsider to "shake things up" in light of the review findings.
He told ABC TV the decision to go with an insider, who was still able to implement change but unlikely to "scare the horses", was the right one given the uncertain economic environment.
Mr Hamilton said the review did call for some "pretty dramatic" cultural and governance changes and appointing someone who had been at the institution for 40 years raised a "legitimate question".
But he said Dr Lowe should not be criticised for lifting interest rates to tackle high inflation as the RBA has been doing since May 2022.
Australian Associated Press
