Tony Abbott failed badly on this front and it was a big part of why he had to go.

Early signs abound that Turnbull and his Treasurer may deliver where Abbott did not. Sentiment has rebounded solidly. Talk to almost any business person and there's both relief and expectation.

For Stevens it's a badly needed reboot that complements his central view, expressed again last month, that Australia's economy has coped remarkably well with the rise and fall of the resources boom – "literally the biggest thing since the gold rush".

"The chances are good that we are going to come out of this – not unscathed, not without a bit of pain – but we are not going to come out of it remotely as badly as we did the previous three or four times we had these things. I think it is an underappreciated success."

Lurking behind Stevens' pleasure at the regime change lies another more important issue, one that goes to the Reserve Bank's future.

Under Abbott there was a real fear the Reserve Bank might suffer the same fate that befell Treasury and its secretary, Martin Parkinson.

Abbott effectively dumped Parkinson in the first days of his prime ministership, overturning decades of convention that prizes institutional succession over cheap short-term politics.

It also had the effect of alienating the new government in its early days from one of the most important assets of high office – a powerful and supportive Treasury.


By pushing out a respected and high-performing secretary, Abbott sent a message that the department's advice wasn't worth listening to; a serious miscalculation.

The whole episode created a perception across the central banking community that Abbott's team was more than capable of "doing a Parkinson" to the Reserve Bank and replacing Stevens when his term expires in September next year with "one of their own".

That fear looks to have been well placed. More than a year ago, a visiting senior team from a major global investment bank was doing the rounds of Australia's economic policy makers – including the Reserve Bank and Treasury, as well as Abbott's office.

What struck the visitors was how openly hostile the PMO was about the Reserve Bank's performance.

The office was particularly angry about the fact that the Australian dollar had rallied back to just shy of US94¢ from US86¢ in early 2014.

Only months earlier the Reserve Bank had embedded in its regular statements language about how interest rates were in for a "period of stability".

Markets took that as a sign that rate cuts were a thing of the past, removing one of the downward forces on the currency.

The stance made sense because of a very genuine concern that more interest rate cuts would further fuel property prices and drive up household debt.


That caution has since been borne out, with a chart published this week by the Reserve Bank showing household debt-to-GDP is around 180 per cent – a staggering level.

Yet the investment bankers were told in no uncertain terms that the Reserve Bank had "f--ked up" its communication and that the government would have to "fix" the institution.

The ham-fisted bluster and aggression that characterised so much of Abbott's two-year prime ministership was being turned on the Reserve Bank, despite it having a global and local reputation as one of the world's out-performing central banks.

With remarkably few missteps, the Reserve Bank has – for well over two decades – helped steer the economy through the 1998 Asian financial crisis, the 2000 dot-com bust, the early 2000s property bubble in Sydney, the 2008 global financial crisis and the severe dislocation caused by the biggest terms-of-trade boom in 150 years.

Throughout the tumult, Australians have enjoyed stable inflation, high employment, unprecedented living standards growth, and most important – life without recession.

Unlike other central banks around the world – most notably the Bank of England, which was subjected to the humiliation of having a foreigner installed as its chief after being seen to have failed its mandate to ensure financial stability in the lead-up to the crisis – there is no case for punishment at the Reserve Bank.

Yet despite that scorecard, Abbott's people were openly telling offshore visitors about the need to put an outsider in charge of the bank – a potentially devastating move that would cast a serious shadow over what is without doubt Australia's most credible economic institution.

That it would potentially occur during the tumult of the 2016 election campaign – rather than be addressed well ahead of next year's September handover – only added to tension within the central bank.


One of Stevens' main objectives during his final years in the job is to manage a succession to the man widely considered the best candidate, his deputy governor, Phil Lowe.

Lauded by many market economists as the finest central banker of his generation, Lowe forewarned by a decade the dangers of overleverage that caused the 2008 meltdown. He is deeply enmeshed into the global central banking community, and earned his PhD at the Massachusetts Institute of Technology, where staff included Ben Bernanke and Stanley Fischer, now vice-chairman of the US Federal Reserve.

In other words, he has an outstanding pedigree.

Luckily for him, his chances of being sidelined by a "captain's pick" curve ball coming out of Abbott's brain have been hugely reduced.

Jacob Greber is The Australian Financial Review's economics correspondent. Phillip Coorey is on leave.