Reserve Bank governor Philip Lowe has warned Australians there’s one simple reason that the central bank keeps hiking interest rates.
Speaking today at Senate Estimates, an unapologetic Dr Lowe said there was one big problem driving the RBA’s decisions.
“Inflation at the moment is 7.8 per cent, that is way too high,” he said.
“It needs to come down. So that’s our primary consideration.
“When we make our decisions each month we’re looking at the data on inflation, the data on the labour market, how household spending is evolving and how the global economy is evolving. All those things are important and the Reserve Bank board meets every single month. And we look at each of those things, each one to make an evaluation of the outlook for inflation. And it’s as I’ve said, is way too high, and it needs to come down.”
But Dr Lowe has given a tick of approval to Labor’s energy policy predicting it will bring down inflation.
That’s good news for interest rates because it means there’s less pressure on the central bank to keep increasing rates.
Dr Lowe was asked by Liberal frontbencher Jane Hume, “If fiscal policy is neutral, does that mean that it’s not assisting to bring inflation down?”
She was essentially suggesting the Albanese government was not doing enough to dampen demand by cutting spending after the RBA governor said he regarded fiscal policy as “neutral”.
“I wouldn’t characterise it that way,” he replied.
“Really, again, it depends upon the federal counterfactual, the government has got a lot of extra revenue because of the high commodity prices.
“There are other elements of fiscal policy that can help as well. The government’s energy package, our estimate is that the price caps there will reduce inflation in 2024 by half a percentage point. That’s meaningful. So that’s helpful.”
The RBA governor is facing hard questions after delivering the central bank’s ninth consecutive rate hike earlier this month, amid fears Australia could be plunged into recession.
With the official cash rate now sitting at 3.35 per cent, up from its historic low of 0.1 per cent in May last year, the 325 basis point increase marks the fastest and largest rate hiking cycle on record.
Dr Lowe has come under fire for saying as late as November 2021 that the bank was likely to hold the cash rate steady at record low rates. He later apologised to Australians who may now regret taking out a home loan off the back of the RBA’s guidance.
On Tuesday, Labor powerbroker and former minister Stephen Conroy said Dr Lowe should “lose his job”, describing the rate hikes as “an outrage”.
“The Reserve Bank governor is operating off a flawed economic model, he won’t admit it, he was wrong two years ago where he told everybody interest rates wouldn’t go up,” Mr Conroy told Sky News.
“The industrial relations system is broken, Australians are getting declining, falling real wages and off the back of that, he’s then slugging them. This is an outrage, what the Reserve Bank governor is doing, which is why he should lose his job later this year.”
Dr Lowe’s seven-year term as RBA governor expires on September 17, 2023.
Treasurer Jim Chalmers said this week a decision on his future would be made by mid-year.
“He’s got a hard job to do,” he told the ABC’s Insiders program on Sunday.
“He’s got to balance getting on top of this inflation challenge without crunching the economy.
“I’m not going to second guess the Reserve Bank governor. I genuinely respect his independence, as I’ve said probably hundreds of times, in Opposition and now in government.
“I think that’s an important feature of the system.”
Asked whether it was “time for Lowe to go”, Deputy Opposition leader Sussan Ley told reporters on Wednesday, “Those are matters for the government.”
“It’s interesting that they are pointing at Philip Lowe, they are pointing at individuals, then of course pointing at the Opposition,” she said.
“They’re talking about personalities, they’re not talking about policy settings. They’re not acknowledging that as a government they need to get those policy settings right.”
Ms Ley said while there was “a lot of discussion around Philip Lowe and interest rates, Philip Lowe has apologised for comments that he made earlier.
“But [Prime Minister] Anthony Albanese needs to apologise for saying that Australians would have cheaper mortgages, when clearly that’s not the case,” she said.
“Anthony Albanese needs to apologise for saying 97 times before the election, that power prices would go down by $275 when clearly that’s not the case.”
Earlier this week, Assistant Treasurer Stephen Jones was criticised by the Opposition after he came close to suggesting the RBA should hit the pause button.
“We know there’s around 800,000 mortgage holders who haven’t yet felt the full brunt of the interest rate increases that are already in the system,’’ Mr Jones said.
“They don’t start to cycle off until mid-year, which is why we think that there’s already a fair bit of pressure in the system and we’re hoping that we don’t see further interest rate increases.
“The Australian government will do its bit to ensure that we are bringing down the pressure on inflation, which is why we hope the Reserve Bank Board can see its way clear to ensuring that we aren’t lifting interest rates any further than they absolutely need to be to tame the inflation dragon.”
Liberal frontbencher Simon Birmingham accused Mr Jones of “undermining the messaging” of the RBA.
“Now Treasurer Chalmers and Prime Minister Albanese need to pull Stephen Jones into line or push him out of the ministry if he’s going to continue to speak out of turn and undermine the independent reserve bank,” Mr Birmingham told Sky News on Tuesday.
The under siege governor is also likely to be grilled over reports he gave a private briefing to big banks at a lunch hosted by investment bank Barrenjoey last week.
Government Services Minister Bill Shorten stressed that while he understood people’s “frustration” with Dr Lowe, he did not believe there was anything “untoward” about the briefing.
Former RBA board member John Edwards said the meeting was common practice and questioned the “personal element” of the attacks on Dr Lowe.
“There’s certainly a more personal element [to the criticism] I think this time than before,” he told ABC Radio.
“Paradoxically, it started when, as a criticism that prior to the Covid pandemic … the RBA kept rates too high.”
A report from the independent panel tasked with reviewing the central bank’s performance is set to hand back its report by March 31.
– with NCA NewsWire
Story Credit: news.com.au