‘Concerns raised’: RBA facing review as fury grows over aggressive interest rate rises

The RBA famously promised Aussies that interest rates wouldn’t rise until “2024 at the earliest”. Now, that broken vow is coming back to bite it.

The Reserve Bank of Australia is facing growing pressure over its policies after hiking rates for five months in a row – after famously vowing the cash rate would not rise until 2024 “at the earliest”.

In July, Treasurer Jim Chalmers announced “the first wide‑ranging review” of the RBA since the 1990s.

At the time, Dr Chalmers confirmed the review would “consider the RBA’s objectives, mandate, the interaction between monetary, fiscal and macroprudential policy, its governance, culture, operations, and more”, with a final report due in March 2023.

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Concerns have reportedly been raised over the RBA’s governance. Picture: Britta Campion/The Australian

But according to Nine newspapers, not only is the review already in full swing, it is “focusing on governor Philip Lowe, his executive and the institution’s board amid criticism of its handling of interest rate policy before and during the Covid pandemic”.

Citing sources close to the review, reporter Shane Wright claimed that “concerns” have been “openly raised about the make-up of the board and its overall governance”.

The RBA board and Dr Lowe are facing criticism for keeping rates too high in the lead up to the pandemic, before cutting them as a result of the Covid recession and then publicly and repeatedly declaring they would stay low until 2024.

But in May 2022 the RBA announced the first official interest rate hike since 2010, revealing it would lift the cash rate by 25 basis points to 0.35 per cent from 0.1 per cent.

It has lifted rates every month since then, most recently on Tuesday this week, when homeowners were slugged with yet another 50 basis point hike, bringing the official interest rate to 2.35 per cent – the highest level since December 2014.

According to Rate City, the average owner-occupier will see their monthly repayments rise by $144 in September if their lender passes on this month’s 0.50 percentage point hike in full.

If you combine the 2.25 percentage points of hikes since May, that’s an extra $614 a month for the average borrower who had a $500,000, 25-year loan before the hikes began.

And it’s a number that’s only going to keep rising, with some economists expecting the official cash rate to hit 3.6 per cent in late 2023.

‘Broken promise’ lashed

This week’s decision sparked an outpouring of anger, including growing calls for Dr Lowe to resign.

Critics of Dr Lowe and the Board referred to the RBA’s message – repeated time and time again from late 2020 and throughout 2021 – that rates would not rise for years.

In fact, for most of last year, the RBA issued the same repeated assurance: “The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.”

Countless Aussies took out mortgages over this period, at a time when house prices, and therefore mortgages, had never been more expensive, with many taking those crucial four words – “2024 at the earliest” – into consideration when making such a momentous financial decision.

Countless Aussies took out mortgages based on the RBA’s promise. Picture: NewsCorp – Daily Telegraph/Gaye Gerard

Homeowners are battling soaring interest rates as well as a cost of living crisis.

Many mortgage holders – especially younger Australians who bought into the nation’s notoriously hot housing market over the past 12 months or so – have been left feeling betrayed by the RBA over what they perceive as a broken promise.

Among the most vocal critics is Greens’ Treasury spokesman Nick McKim, who wasted no time in calling out Dr Lowe’s actions.

“Reserve Bank Governor Philip Lowe induced hundreds of thousands of Australians into taking out mortgages by saying that interest rates would not rise until 2024, unless there was sustained wages growth,” he posted on Twitter this week.

“Having failed to keep that commitment, he should now resign.”

Nationals senator Matt Canavan echoed that call, telling Today host Ally Langdon there “has to be accountability”.

“The Reserve Bank failed. There is no doubt about that,” Mr Canavan said this week.

“I think this RBA governor should have gone when he promised to not raise rates until 2024 and now he‘s broken that promise five times.”