Just the latest in a long line of RBA’s stuff-ups

For most of the two years of the pandemic-induced lockdowns, Philip Lowe told Australians to be confident when buying houses, just as he told businesses to be confident when buying plant and equipment. Picture: Getty Images

Reserve Bank governor Philip Lowe’s term ends on September 17 next year. No matter who is Treasurer at the time, his tenure should not be continued.

The litany of Reserve Bank misses keeps piling up. For five years before the pandemic struck, inflation was below the RBA’s preferred target band of 2-3 per cent.

But Lowe and the board refused to cut interest rates to stimulate the economy and inflation during that time.

He told Australians the nation would not need quantitative easing. Then Covid hit.

The Reserve Bank cut its cash rate to 0.1 per cent and started quantitative easing on a scale never imagined – as much as $350bn worth of bonds. He would say this bond buying – on which large losses now mount as interest rates rise – helped save the economy during Covid.

But for most of the two years of the pandemic-induced lockdowns, Lowe told Australians to be confident when buying houses, just as he told businesses to be confident when buying plant and equipment.

It amounted to this: don’t worry about interest rates going up … we’re not moving rates until at least 2024.

The governor says this was no promise. So, as they say, let’s go to the tape.

“It is still plausible that the first increase in the cash rate will not be before 2024.”

That was November 16 last year … less than six months ago.

“I find it difficult to understand why rate rises are being priced in next year or in early 2023.” That was November last year as well.

How about this: “If you think we’re going to raise interest rates in 2023, you’ve got to have a much more positive forecast of wages growth than we currently have.” That was on July 7 last year.

The evidence of inflation mounting in Western nations was overwhelming.

It prompted the Bank of England, the Federal Reserve, the Bank of New Zealand, the Bank of Canada, Korea, Singapore and Norway – among others – to raise interest rates.

But not here: we, according to the Reserve Bank governor, were different. “While policy rates might be increased in other countries over this timeframe, our wage and inflation experience is quite different.” That was in September last year.

Except, it turns out, we are not so different. The Reserve Bank governor could not have been expected to forecast a war in Ukraine sending energy and wheat prices soaring … or for China Covid lockdowns to further threaten supply lines. But the truth was that inflation was already emerging. Any Australian who had ordered a car or electrical item knew about delays and higher prices; anybody who had been to a pub understood about labour shortages and wage pressures.

So, let’s again go to the tape: the Reserve Bank governor on Tuesday, explaining what happened: “Interest rates are normalising much quicker than we thought was going to be the case. So, from a forecasting perspective, that’s embarrassing, and we should forecast this better.

“We didn’t, but what we did do in 2020 was to make sure we took every possible step that we could take to help the country.”

The RBA governor then added that normalised rates could be 2.5 per cent … still 2.2 per cent higher than the level they are at today.

Now ask a young homebuyer – facing increasing austerity as interest rates rise and housing values fall – if they think the RBA has done the right thing.

The answer is an overwhelming no, which is an indictment of Philip Lowe and the Reserve Bank’s public forecasts.

Ross Greenwood is business editor at Sky News Australia