‘I don’t know’: RBA boss’ worrying admission on rising rates
As homeowners cop an increasing amount of pain, RBA boss Philip Lowe has admitted he does not know how far interest rates will rise.
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Reserve Bank governor Philip Lowe has made a bizarre claim about Treasurer Jim Chalmers that could come back to bite Labor in Question Time.
Dr Lowe was asked during Senate Estimates on Wednesday about personal attacks surrounding the independence of the bank.
The central banker said he didn’t feel the independence of the institutions was under attack and it wasn’t impacting their decision making.
“The Treasurer and I haven’t really spoken about interest rates,” he said.
“That’s the way we operate. There’s no pressure from the Treasurer, Treasurer Chalmers.
“It’s noisy, but raising interest rates is always unpopular. It affects the whole community and the representatives of the community, understandably, will sometimes want to talk about that. But we keep doing our job. And our job is to make sure inflation comes down and hopefully preserve the gains in unemployment that we’ve made.”
The RBA sets interest rates independently and as such does not take orders from the government of the day or the Treasurer.
However, the central banker’s claim that he hasn’t even spoken to the Treasurer about the biggest issue hurting Australian families is sure to be seized on by the Liberals in question time.
“You said before, governor, that you didn’t talk to the Treasurer about interest rates. Is that right?” Liberal Senator Andrew Bragg said.
“Yes, we talk about the economy,” Dr Lowe replied.
He said it was the same with Treasurer Joe Hockey and Scott Morrison before that.
“This is not just the current Treasurer, but Treasurers before him,” he said.
“They don’t share with me or the Reserve Bank board their views about what interest rates should or should not do. We talk about the economy and there are obviously implications of that for interest rates, but it’s not something that governments have discussed with the central bank.”
Senator Bragg then returned to the issue again prompting Dr Lowe to stress they were in regular contact.
“We talk,” he said.
“We are both going to India next week. So I spend a lot of time with the Treasurer.”
He was also asked whether the Treasury secretary Dr Stephen Kennedy was a representative of sorts on the RBA board.
“I don’t know what takes place between the Treasury secretary and the Treasurer, but the Treasury secretary is on the board in his own right,” Dr Lowe said.
“And I don’t know what he says to the Treasurer after the board meeting, but I do not speak to the Treasurer between the board meeting and the announcement.
“And that’s always been the way so there’s nothing unusual here. It’s just the way the system is operated.”
Dr Lowe also offered a big concession that central banks “did too much” during the Covid pandemic.
“It’s easy to forget this now. In early 2020 we were being told by the health people that tens of thousands of Australians would be dead within months,’’ he said.
“They will remember there were preparations for including near the Reserve Bank for temporary morgues in our cities. Our borders were closed, though we were told the vaccine was maybe three years, maybe longer away.
“I mean, it was really, really terrible and scary.
“And it turns out that the scientists developed a vaccine much more quickly, and the economy was more resilient. And we did too much about it.”
‘The banks are profitable’
He earlier revealed that struggling mortgage holders are writing to him in droves about their interest rates and it leaves him with “a heavy heart”.
Speaking today in Senate Estimates, Greens Senator Nick McKim asked the central banker what he would say to the renters and the mortgage holders of Australia who are “getting smashed by interest rate increases while the major banks are pulling in mega profits”.
“We recognise it’s really difficult,” Dr Lowe replied.
“A lot of people are writing to me at the moment telling me about their personal circumstances and it’s really really tough. We understand that and you know, I read those letters and hear those stories with a very heavy heart.
“I find it personally sort of disturbing, really, and people are really, really hurting. I understand that. But I also understand that if we don’t get on top of inflation, it means even higher interest rates. And more unemployment. So the banks are profitable. It’s true. It’s a positive for the country. You want strong, resilient banks.”
Dr Lowe appeared to laugh at this point.
“I know it’s hard for people to accept when they’re suffering, problems with their personal finances, but the country is better off from having strong, resilient, effective banks who can provide the financial services that we need. All right?” he continued.
Brutal question
It came after he copped a brutal question as he was asked, “Why you still deserve to hold your job?”
Senator McKim opened his questions today with a laundry list of complaints over the RBA’s performance.
“Can you explain to the renters and mortgage holders of Australia why you still deserve to hold your job?” he asked.
In response, Dr Lowe said he had a seven-year term which expires in September 2023.
“I have a seven-year term as the Governor of the Bank and I intend to serve out,” he said.
“That said, it’s an important job that comes with public accountability and as part of the process, but I intend to serve out that term.
“Decisions that the Reserve Bank may have made are by a board of nine people. It’s not just me. We make them collectively and collaboratively, and the board has made these decisions.”
But he added that was it not true he was trying “smash Australia into a recession”.
“Can I just pick up on one other issue that you raised? You said that I seem intent on smashing Australia into a recession,” he said.
“Can I assure you that’s not our intention. We want to get inflation down because it’s dangerous. it’s corrosive, it hurts people. It damages income inequality. And if it stays high, it leads to higher interest rates, and, and more unemployment, so we want to get inflation down, but we also want to preserve the gains in employment that we’ve made.”
‘Cosy lunches’
Dr Lowe has made one concession today — he will no longer have “cosy lunches” with bond traders before the release of the statement of monetary policy.
Grilled on reports he gave a private briefing to big banks at a lunch hosted by investment bank Barrenjoey last week, Dr Lowe defended the lunch.
He said he liked talking to people and it was useful, but he accepted there had been criticism.
“I hear that many people have concerns about the timing, the timing between the Reserve Bank board meeting and the release of the statement of Monday on monetary policy, which is on Friday,’’ he said.
“I thought that was manageable but I hear many people are concerned about that.
“So we’re responding to that and we will no longer do those type of lunches before the release of the statement on monetary policy.
“There’s nothing untoward here. It’s appropriate. I can’t live in a bubble. I need to talk to people. I need to hear what financial markets say. And I like asking people questions. You asked me questions today. I ask people questions about what they think.
“So that’s the world we’re in and in general, and for many, many years, we’ve been able to have these and other meetings with the understanding of all participants that people in the meeting don’t run to the press straight afterwards.
“If you’re meeting with me, you want to have confidence that I’m not going to go to the press or tell other people what you’ve said and I expect the same.”
Earlier, 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.”
Rates not ‘at peak’
Dr Lowe also issued a chilling warning that interest rates have not yet hit a peak.
Australia’s central banker warned homeowners today it was going to get worse before it got better.
“I don’t think we’re at the peak yet,” Dr Lowe said.
“Yet how far we have to go up, I don’t know. It’s going to depend upon the inflation data, the resilience of spending, the strength of the global economy and what’s happening with prices and wages.”
During the exchange, Liberal Senator Andrew Bragg picked up on his admission that he doesn’t talk to Treasurer Chalmers about interest rates.
He also conceded under questioning from Senator Jane Hume that under the RBA act that the Treasurer had the power to override the Reserve Bank’s policy and that’s been the case since 1959.
“It would be unwise in most cases to do and unless we went completely crazy,” he said.
‘Inflation is way too high’
At the start of Wednesday morning’s hearing, an unapologetic Dr Lowe warned Australians there’s one simple reason that the central bank keeps hiking interest rates.
“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.”
Lowe should ‘lose his job’
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 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.
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
Originally published as ‘I don’t know’: RBA boss’ worrying admission on rising rates
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