RBA governor’s rationale just doesn’t add up

At the risk of sounding blunt, I’d like to pose the following question: does the governor of the Reserve Bank, Philip Lowe, actually know what he’s doing?

There is no economic disaster out there.

The unemployment rate is 5.3 per cent, which is low by the standards of recessions and periods of very weak growth.

The employment-to-population ratio is at its highest level ever.

Employment growth continues to power away and we have just recorded a current account surplus for the first time in more than a quarter of a century.

Net exports are a strong contributor to economic growth.

You would actually expect the cash rate to be about 5 per cent to 6 per cent, not 0.75.

Lowe reminds me of a teenager who hasn’t met curfew.

Lots of excuses: everyone was running late, the car broke down, it wasn’t my fault, we ran over a dog and had to take it to the vet.

Lowe’s reasons for driving down the cash rate to historic lows have been all over the shop.

We need to reach our inflation target of 2 to 3 per cent a year, even though we have failed to do so in the context of the cuts already made to the cash rate.

We have to follow what other countries are doing.

We must make sure that the Australian dollar doesn’t appreciate.

We need to achieve full employment, which we have decided to call 4.5 per cent even though the bank knows that cuts to the cash rate at such low levels are unlikely to encourage higher levels of investment.

It was surely ironic that the bank’s bizarre decision came on the same day as the release of information about surging house prices in Sydney and Melbourne.

Low cash rates mightn’t affect the real economy but they are very effective in pushing up asset prices.

Is this what Lowe wants to achieve?

And let’s be clear, the improvement in the housing market is really about higher prices for existing properties.

The information on building approvals paints a bleak picture, and even mortgage growth is sluggish.

The lucky ones are in the process of getting even luckier. It’s the same story with the equity market.

And let’s be clear about something else: many of the answers to the questions that clearly stump Lowe and his vast staff are micro-economic in nature.

For example, as Ted Evans declared many years ago when he was Treasury secretary, the rate of unemployment is essentially one we choose, given all the regulatory impediments that exist to prevent full employment.

As for the losers from this latest round of cuts to the cash rate — savers, particularly retirees — Lowe’s response is completely dismissive: they are a small group of privileged ingrates who don’t concern him.