Mohl backs Costello on RBA’s yield control policy

Andrew Mohl has strongly backed ex-Treasurer Peter Costello’s assessment the Reserve Bank ‘completely missed’ the inflation surge leading to its worst monetary policy failure in three decades.

Andrew Mohl said the nation was now facing a macroeconomic situation where households were being hit by multiple issues.

Former AMP chief executive Andrew Mohl has strongly backed ex-Treasurer Peter Costello’s assessment that the Reserve Bank “completely missed” the surge in inflation in the RBA’s worst monetary policy failure in three decades.

Mr Mohl, who served as a Commonwealth Bank director, has been a persistent critic of the RBA’s emergency Covid-19 policy to pin the three-year government bond to the cash rate in March 2020.

The yield target contributed to protection against downside economic risk by lowering funding costs for lenders and reinforcing other elements of the RBA’s package of measures.

Mr Mohl, however, likened yield curve control as practised by the RBA to the operations of a private hedge fund.

“But in reality, no private sector player would do this as the risk and capital requirements would be off the charts,” he told The Australian.

“Where FX intervention by the RBA in the past was always countering the extremes of market movements, that is buying the dollar when it was tanking and selling the dollar when it was soaring, this bond market intervention was actually extending the excesses already in the markets.

Former Treasurer Peter Costello.

It was amplifying market volatility and fostering asset mis-pricing, asset price bubbles and excessive leverage.”

Mr Costello told The Weekend Australian that he had believed as far back as the March quarter that inflation was an emerging problem.

The RBA, he said, had completely missed the takeoff point and was now “behind the curve”

“Its primary duty is to manage the (2-3 per cent) inflation target and it failed in that duty,” the Future Fund chair said.

“It’s the worst failure in monetary policy since the 1990s, and the consequences are that the RBA now has to raise interest rates faster and further than would otherwise be the case.”

The risk of a recession, he said, was therefore higher.

An internal RBA review of the unprecedented yield curve control policy, released on Tuesday, found that the exit from the policy had been “disorderly” and the central bank had sustained “some reputational damage”.

It said the view of the board was that the policy was unlikely to be used again, with bond purchases the more likely alternative.

Mr Mohl said the nation was now facing a macroeconomic situation where households were being hit by surging inflation, falling real wages, soaring energy costs, falling house prices, falling share prices and falling superannuation values.

“And the RBA will be operating now to increase interest rates and reduce liquidity/money supply through quantitative tightening,” he said.

“That is, it will be amplifying the pressure on households through its belated actions as it finally realises that zero-interest-rate and quantitative easing policies are not fit-for-purpose and the inflation genie is well and truly out of the bottle.

“You can dress this up any way you like but this is the essence of what they have done.

“As Peter Costello rightly says, this is the biggest policy failure in the past 30 years.”