The Reserve Bank of Australia will get its first woman leader as the federal government chooses not to extend Philip Lowe’s tenure.

Dr Lowe will be replaced by Michele Bullock, the current deputy governor of the central bank.

Treasurer Jim Chalmers has repeatedly expressed his admiration for the existing governor, but he ultimately opted for a fresh face to lead the RBA.

Ms Bullock has served as deputy governor since April last year and she will be the first woman to lead the central bank.

She started working at the RBA in the mid-80s and has held a range of other senior positions at the institution before ascending to the top job.

The treasurer was said to be picking from a shortlist of candidates that included Ms Bullock, Treasury secretary Steven Kennedy and Finance secretary Jenny Wilkinson.

Dr Lowe was at the helm of the Reserve Bank throughout the turbulent pandemic period and his leadership during the recovery period has landed him in hot water.

His prediction that interest rates would stay on hold at low levels until 2024 attracted criticism after the bank 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 into the nation’s top economic institution – the first in decades – and confirmed the bank would act on most of the recommendations in a speech earlier in the week.

The new governor will have the challenging job of steering the central bank through a major reform era 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.

Opposition Leader Peter Dutton said he did not want a senior public servant appointed to the role, arguing that the relationships between senior ministers and top bureaucrats was too cosy.

However, there is precedent for a top mandarin moving into the governor’s position, with Bernie Fraser appointed to the job from Treasury secretary in the 1980s. 

Mr Chalmers and Dr Lowe are still expected to travel to India on Monday for a meeting of the G20.

By Poppy Johnston in Canberra