The last thing Philip Lowe is owed is your sympathy. Or my kid gloves

Another Tuesday, yet another increase in mortgage rates. Already livid at the Reserve Bank of Australia’s governor Philip Lowe after 2.75 percentage points of increases in the past six months, this latest quarter-point rise will only sharpen mortgage holders’ pitchforks further.

The trouble is, this ire is somewhat misplaced. Not that you shouldn’t be ropeable. You absolutely should be. But not for the reason you think.

Another Tuesday, another rate rise...Credit: Bloomberg

In recent years, the RBA has found itself under an unprecedented degree of public pressure. Normally meticulous in avoiding the limelight, the governor has found himself a deer in the headlights. And, despite suggestions to the contrary, much of it is of his own making.

Last year, I was seated at dinner across from a senior member of the Sydney business community. He leaned over to the person sitting next to him and introduced me as “the man who called for the RBA governor to be fired”.

This was in reference to a quote I had given Shane Wright, of this masthead, for his award-winning series unpacking the problems with the RBA. “If one of my employees had failed to achieve his KPI for half a decade, I would long since have sacked him,” I’d told Wright.

The audacity!

The man occupies one of the most powerful positions in the country. He signs the money! And the Australian people send him more than 10,000 $100 notes each year for the privilege. The last thing he is owed is your sympathy. Or my kid gloves.

For decades, long before Lowe’s governorship, the RBA had cultivated a kind of protection racket among the media, business and government. It wielded massive power over all three – favoured journos were given privileged access, financial institutions were (and still are) regulated by the RBA, and governments of both stripes were in a kind of unspoken truce with the central bank.

Today’s governor, Philip Lowe, joined the RBA at the very beginning of his working life. The RBA, at its heart, is a monastic institution. They get them in young, they train them in the doctrine, and they keep them for decades. It’s not a job so much as a way of life. Exposing oneself to the glare of the outside world runs deeply against the grain.

This approach might have worked for a time to preserve the RBA’s sovereignty, but evidently it was both terribly corrosive to the institution (and our democracy) and politically unsustainable. Mercifully, that era appears to be at its end.

The RBA’s myriad problems have been well ventilated. Current and former staff speak of an insular and anti-intellectual culture, the economic research department being at best ignored and at worst dismissed, junior staff being stifled, and a military-style, top-down culture hostile to dissent and creativity. From the outside, the bank seems at times totally oblivious to the global frontier of expert thinking on monetary policy.

If you want a smoking gun, look at rates kept too high before the pandemic (costing many thousands of jobs) and rates kept too low coming out of it (helping stoke inflation). Philip Lowe’s RBA is not so much risk-averse as action-averse, preferring to commit sins of omission over commission. Even when the former is far worse, at least you can blame someone else.

But more powerful than any smoking gun is the vast accumulation of tiny cuts that in aggregate speak to a sick institution.

The RBA’s board, unlike the central banks of other advanced countries, is not occupied by experts. That means Lowe knows far more about what he is recommending than any outside member. There isn’t a single person in the room in a position to scrutinise his advice. When questioned about this, Lowe staunchly defends the status quo. No wonder!

In the decades the RBA has conducted independent monetary policy, it has never pre-emptively initiated an independent or external review of itself, in contrast to the countless reviews initiated by other central banks. When the idea was floated, Lowe resisted it. When it became inevitable, he expressed a preference only for an internal review. No wonder!

Lowe almost never holds press conferences after rates decisions and appears before the House of Representatives just twice a year. Unlike other agency heads, he doesn’t appear before Senate estimates. Only after being compelled by a motion by Senator Nick McKim to attend in person did Lowe appear last week.

Indeed, McKim hit the nail on the head: “Independence does not mean a lack of accountability.” In fact, I’d posit a lack of accountability undermines the sustainability of RBA independence. As one can see from the witch-hunt the bank has unleashed upon itself.

You should be angry with the RBA. Not because it is raising rates, which it must do to contain inflation. But because it has slowly eroded the cornerstone of our economic architecture, which is responsible for the livelihoods of us all. The review under way, and our treasurer who awaits it, must show the guts to finally do something about it.

Steven Hamilton is assistant professor of economics at George Washington University in Washington DC and Visiting Fellow at the Tax and Transfer Policy Institute at the ANU.

The Opinion newsletter is a weekly wrap of views that will challenge, champion and inform your own. Sign up here.

More from our award-winning columnists

An anxious nation: Mortgage stress, COVID burnout, extreme weather and the cost of living crisis - no wonder Australia’s status as the “lifestyle superpower of the world” is under threat - Nick Bryant

The future of democracy: Australia must learn from America’s descent into extreme inequality, which has led to deep discontent. It must also do more to civilise “social” media - the great amplifier of hate - Peter Hartcher

Behind the interview: Shane Warne may have been the greatest bowler legendary interviewer and cricket lover Michael Parkinson has ever seen, but he’s not his favourite interview - Peter FitzSimons