Reserve Bank boss Philip Lowe again defends interest rate position

Embattled Reserve Bank boss Philip Lowe admits he might have gone too far with interest rate hikes – but also might not have gone far enough.

Reserve Bank governor Philip Lowe says nothing keeps him awake at night and that Australians “complain a lot” amid soaring interest rates, crippling inflation and a cost of living crisis.

Despite admitting he may have overshot the number of rate rises needed to tame inflation and that he made the wrong call during Covid-19, Dr Lowe said there was an equal chance he had not gone hard enough in jacking up rates – and if he failed it meant even higher interest rates, for longer, as well as rising unemployment.

At his second parliamentary grilling this week, he indicated at least two more rate rises were likely, saying inflation was “high, way too high”, meaning more mortgage pain on the way.

“There’s a risk that we have gone too far … and the economy will slow. There’s also a risk we haven’t done enough … and inflation will be persistent,” Dr Lowe said.

Earlier in the week Dr Lowe, who earns more than $1m a year and reportedly lives in a $4m mansion in Sydney’s Randwick, spoke about receiving “disturbing” letters from Australians sharing their stories of hardship after nine interest rate rises sent mortgage repayments soaring.

But asked on Friday, at the parliamentary economics committee, what kept him up at night, Dr Lowe said nothing.

“Nothing keeps me awake. I’d like to be in the media less, but apart from that, nothing keeps me awake at night.”

He warned it would be “dangerous and corrosive” if high inflation became set in, and that the one tool he had at is disposal was the blunt instrument of rate rises.

RBA governor Philip Lowe appears before a House standing committee on economics in Canberra on Friday. Picture: Gary Ramage/NCA NewsWire

“(High inflation is) corrosive, it hurts people, it damages income inequality and if it stays high, it leads to higher interest rates and more unemployment,” Dr Lowe said.

“It is still possible for us here in Australia to navigate this path … But it is also possible that we are knocked off that narrow path.”

Retail spending, consumer confidence, wages and business surveys will be used to help indicated when to stop raising rates.

“If we need to stop, we will. If we need to keep going, we will,” he said.

Dr Lowe said Australians “complain a lot” and could sometimes forget about the quality of life they were afforded.

“Sometimes we complain a lot in this country, but we enjoy a quality of life and a standard of living that very few other people in the world enjoy,” he said.

“We’re one of the world’s most wealthiest, prosperous, equal countries. Australia is a fantastic place to live.

“Among all the complaints you can sometimes forget that..”

He said the economy bounced back faster from Covid-19 than expected, and dropping interest rates to 0.1 per cent, in a bid to keep finances flowing during unprecedented times, had been a step too far.

“We did what we thought was right, based on information we had. It turned out we did too much. And we’ve had to backtrack,” Dr Lowe said.

The RBA has come under fire since lifting the official cash rate — which guides interest rates set by lenders — a record nine consecutive times since May to 3.35 per cent this month.

There are 880,000 Australians with $350 billion in outstanding loans set to come off low fixed interest rates on to higher variable rates this year, Dr Lowe warned.

RBA assistant governor Brad Jones told the same parliamentary hearing there was a big disparity between Australian households in terms of how much they were struggling with interest rates.

Dr Jones said about half of variable-rate owner-occupiers were more than a year ahead on their mortgage payments, and a third more than two years ahead.

But about 10 per cent of variable-rate owner-occupier borrowers had “virtually no spare cash flow” after their mortgage payments and their living costs, he said.

Meanwhile, Dr Lowe told Australians they should “hunt down” good deals on mortgage rates and switch banks if they aren’t happy with their current one.

The governor said the rate of refinancing was at a record high and the banks were competing for customers who were saving “40 basis points on average” on their mortgages from changing lenders.

He also called out banks for not passing on higher interest rates to customers with savings accounts.

“The banks have very quick to pass on (interest rates) onto loan rates. But most of them are very slow to pass on to deposit rates,” he said.

“And they need to do better there and the inquiry the government has just announced hopefully will put pressure on to do that.”