Dr Lowe will be replaced by Michele Bullock, the current deputy governor of the central bank, when his seven-year tenure finishes on September 18.

Bullock has served as deputy governor since April last year after a near four-decade career at the RBA, which has included several senior positions.

Prime Minister Anthony Albanese said Bullock was “eminently qualified” to lead the national institution.

“Michele will be in an important job at an important time with the challenges that we face globally,” he said on Friday.

Bullock said she was deeply honoured to be appointed to the important position.

“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 Lowe for his seven years of service, particularly for his efforts to support the economy during the COVID-19 pandemic.

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

Treasurer Jim Chalmers said 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.

Lowe was at the helm of the Reserve Bank throughout the turbulent pandemic period, but it was during the recovery phase that his leadership 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.

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.

Asked why Lowe was not offered an extended term, Chalmers said lengthening the governor’s tenure was an “exception rather than a rule”.

“There are the eight governors who have served to this point, five of them haven’t had their term extended,” he said.

Bullock 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.

But the treasurer said the opposition leader was “relentlessly negative” and was now “bagging things that aren’t even happening”.

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

-with AAP