Interest rates: RBA Governor Philip Lowe should resign, says leading economist Warren Hogan

During the pandemic, Reserve Bank Governor Philip Lowe said it was “very likely” rates would stay at 0.1 per cent until 2024 – a claim one top economist is demanding he resign over.

The Reserve Bank of Australia Governor and board should resign for reasons including “misleading” borrowers, says a leading economist, who, like some other experts, believes the RBA’s ultra-rapid rate increases threaten to push the nation into a recession.

Former principal adviser to federal Treasury and chief economist at both ANZ Bank and Credit Suisse Warren Hogan told The Daily Telegraph the RBA had made “pretty bad errors” over the past 18 months and was at risk of compounding those by jacking up the cash rate too quickly.

The RBA board meets on Tuesday and is expected to hike the benchmark interest rate by 0.5 percentage points, as it did in July and June. The central bank may even hoick by 75 basis points, some economists predict. Either way, the RBA has not raised this rapidly in a generation.

A 50bp jump would add $219 to monthly repayments on the average new mortgage in NSW of $781,000.

Mr Hogan, who was also a professor of economics at Sydney University for 30 years, said RBA Governor’s Philip Lowe’s chief error was a public commitment in 2021 that the cash rate was “very likely” to remain at 0.1 per cent until at least 2024.

RBA Governor Philip Lowe last week. Picture: Jeremy Piper

He said that guidance had the effect of “misleading people, basically” and encouraging them to buy homes and take out loans in the mistaken belief that rates wouldn’t rise for up to three years.

Mr Hogan also said the RBA board “took out too much insurance” during the pandemic, including by further lowering the cost of money through a massive bond-buying program.

“They threw the kitchen sink at it and they lost their risk management skills,” he said. “It’s unforgivable. I think they should resign — the whole board.”

Mr Lowe “should have the character to stand down,” Mr Hogan said.

The central bank was now “flying blind”, Mr Hogan said, by raising rates so quickly it didn’t “know the effect“ of its hikes before hiking again and again.

Top fund manager Christopher Joye, who used to work for the RBA, questioned the accuracy of a claim made by Mr Lowe in a statement accompanying last month’s July rate jump, from 0.85 per cent to 1.35 per cent.

Mr Lowe said that 50 basis point hike was “a further step in the withdrawal of the extraordinary monetary support that was put in place to help insure the Australian economy against the worst possible effects of the pandemic.”

But the cash rate was at 0.75 per cent immediately before Covid, Mr Joye noted, so the extraordinary support was already fully withdrawn before that July increase.

“This concept that the RBA is communicating to the community … is wrong,” Mr Joye told The Telegraph. “Rates stopped being at extraordinarily low levels in June.”

Mr Lowe’s management of monetary policy is in question. Picture: Jeremy Piper

Mr Joye, who is the chief investment officer of Coolabah Capital which manages $7.5 billion, said interest rates needed to rise from record lows. But not this quickly.

He said that as a result of the RBA’s actions, consumer confidence is at rock-bottom and Sydney house prices have racked up their biggest drop since the 1980s.

“With huge debt in the economy and huge cost of living pressures it behoves the RBA to move cautiously but that’s not what they are doing,” Mr Joye said.

Mr Hogan is forecasting a recession next year, as is Nomura senior economist Andrew Ticehurst.

Economist Warren Hogan. Picture: Supplied

Mr Ticehurst said he expects the RBA to move by 75bp on Tuesday as part of an “aggressive series of rate hikes to a peak of 3.35 per cent by (the) end (of) 2022.”

That would cause the economy “slide into recession from early 2023 and ultimately lead to rate cuts,” he said.

The RBA declined to comment on Monday.

However, after the RBA began its rate-rising campaign in May, Mr Lowe was asked about his decision during the pandemic to publicly say interest rates were very likely to be on hold until 2024.

“In retrospect, given the same situation, I’d probably make the same decision,” Mr Lowe said.