By Wayne Cole

SYDNEY (Reuters) -Australia has appointed the first female head of its central bank, passing over the current governor to elevate his deputy to the high-profile job amid a public backlash over steeply rising interest rates.

Australian Treasurer Jim Chalmers and Prime Minister Anthony on Friday announced Michele Bullock would head the Reserve Bank of Australia (RBA) for the next seven years, having chosen not to reappoint Governor Philip Lowe for a second term.

Lowe will leave on Sept. 17, marking the end of his 43-year career at the bank. The decision comes as Lowe is due to accompany Chalmers to a Group of 20 meeting in India next week.

In a press conference, Chalmers said it was not out of the norm for a governor to only serve one term and he felt Bullock was best placed to lead the RBA through a coming reorganisation.

"This is a history-making appointment," Chalmers told reporters. "Michele Bullock will become the first woman to ever lead the Reserve Bank in this country."

The government has been under pressure to dump Lowe for encouraging people to borrow in 2021 by saying interest rates were unlikely to rise until 2024, only to start hiking two years early in mid-2022.

The central bank has since lifted rates 12 times to a decade-high of 4.1%, adding hundreds of dollars to monthly mortgage repayments at a time when a cost of living crisis is already stretching household budgets.

Lowe even took the extraordinary step of apologising to any borrowers who had acted on his policy assurances.

A SAFE CHOICE

Just this week, Lowe said it was possible rates would have to rise yet further to bring inflation to heel. He is due to chair the next two policy meetings in August and September and markets are divided on the likely outcomes.

Lowe had also said he would be honoured to stay if asked, but would understand if the government wanted a new leader. His two predecessors, again both career central bankers, were reappointed to second terms and each served 10 years in total.

"The Reserve Bank is in very good hands as it deals with the current inflation challenge and implementing the recommendations of the Review of the RBA," Lowe said in a statement on Friday.

Bullock, who joined the RBA in 1985 with a masters from the London School of Economics, is widely respected by analysts and financial markets showed little reaction to the change.

"My interpretation is this is much better than a political appointee," said Hugh Dive, chief investment officer at Atlas (NYSE:ATCO) Management. "Markets would have been concerned if it was someone very overtly political. So it's probably the best outcome."

The RBA is currently undertaking the biggest reorganisation in decades after an independent review into its operations recommended sweeping changes to the way policy was formulated and communicated.

"It is a challenging time to be coming into this role, but I will be supported by a strong executive team and boards," Bullock said in a statement.