RBA governor tells Senate committee he’ll keep seeking feedback on policy

Quizzed by the Senate Economics Committee about a lunch with clients of Barrenjoey last week, Philip Lowe said “we don’t want to live in a bubble”.

Philip Lowe won’t be lunching with bankers before monetary policy statements in future.

But the Reserve Bank governor has vowed to continue the central bank’s practice of seeking feedback on its policies via private meetings, as he did at last week’s Barrenjoey lunch.

He also remains determined to lower inflation, but won’t “smash the economy” to do so.

Quizzed by the Senate Economics Committee on the context of his lunch with institutional clients of Barrenjoey last Thursday, Dr Lowe said “we don’t want to live in a bubble”.

He declined his National Press Club invitation in the first week of February based on feedback that “maybe you’re talking too much”. Many would agree, although a post-meeting press conference may be more valuable than some of the less important speeches by RBA officials.

Additional feedback was that it was best for the governor to start his public appearances for the year by addressing the questions of the parliament, rather than the media, as he had done in previous years since his appointment in 2016. Because his parliamentary testimony was delayed by a week, he had a “gap” in his diary.

RBA governor Philip Lowe reacts to questioning by the Senate committee on Wednesday. Picture: Gary Ramage

And he wanted to hear what people in the market had been saying about the RBA’s decision to lift interest rates by an additional 25 basis points to a decade high of 3.35 per cent.

“I hear that many people have concerns about the timing … between the Reserve Bank board meeting and the release of the Statement on Monetary Policy,” Dr Lowe said.

“I thought that was manageable, but I hear many people are concerned … and we’ll no longer do those type of lunches before the release of the Statement on Monetary Policy.”

Dr Lowe also effectively denied that he gave any non-public information at the lunch.

“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 are saying and I like asking people questions,” he said.

He was clearly miffed that some participants had “run to the press straight afterwards”.

“In general, and for 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,” Dr Lowe said.

“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 courtesy.

“And that’s what happens 99.9 per cent of the time. That did not happen. There’s nothing untoward here … I want to talk to people. We aren’t going to change our practice.”

As for the heightened criticism by Cabinet ministers of his performance in recent weeks, Dr Lowe said increasing interest rates was “unpopular” but he was “not aware of any co-ordinated attack”.

Such criticism would not affect the Reserve Bank’s actions, and Dr Lowe intended to serve out his term, which ends in September. But he did not indicate that he would seek reappointment.

On inflation, he said it was “way too high and it needs to come down” and because of that, there was a “risk we haven’t done enough on interest rates”.

But he rejected the notion that the RBA was aiming to “smash” the economy to lower inflation.

“I don’t think we’re at the peak yet, but how far we have to go up, I don’t know,” he said.

He reiterated that “if inflation expectations stay anchored, we can stay on the narrow path”, and a “wage-price spiral is a relatively low probability, but the cost is very high”.

However, he warned “there are risks here … if we end up in the world … where people link wage increases one for one with inflation, then inflation will persist and it will be more difficult”.

Positively, Dr Lowe noted, “enterprise agreements … over the past five months have bigger wage increases this year. But then next year they’re a bit lower again”.

Inflation was “not just because of global supply”, but “because of strong demand” and “increasingly a demand element”.

NAB head of markets Tapas Strickland.

But the RBA was still “trying to navigate a narrow path” to avoid a recession, aiming to lower inflation but “preserve gains made in the labour market”.

He said the RBA’s forecast of the unemployment rate rising to 4.5 per cent and CPI falling to 3 per cent over the next couple of years would be a “good outcome” but it depended on wages.

Dr Lowe’s Senate testimony came a day after the combination of weak consumer sentiment, and strong business confidence and conditions highlighted the challenge for the Reserve Bank as it jacks up interest rates to prevent a damaging prices-wages spiral.

“Overall, Lowe’s comments and tone suggests he is more worried about inflation risks than activity risks,” said NAB’s head of markets, Tapas Strickland.

“Market pricing of three more hikes in a quick flurry looks justified on these remarks.

“Should activity start to weaken as we expect, then risks are likely to become more two sided over coming months as rates move deeper into restrictive territory and concerns about activity grow.

“That would then justify a pause, which we think would be needed given the considerable tightening put in place and the ‘long and variable’ (lag) associated with monetary policy.”