‘I’m sorry’: RBA governor Philip Lowe apologises for flawed guidance on interest rates

Philip Lowe has apologised to Australians who took out too much debt based on the bank saying that rates would not rise until 2024.

RBA Governor Philip Lowe has apologised for the bank’s flawed guidance that rates would not go up until 2024. Picture: NCA NewsWire/Gary Ramage

Reserve Bank governor Philip Lowe has apologised to Australians who took out too much debt based on the bank’s flawed guidance that rates would not rise until 2024, saying he was “certainly sorry if people acted on what we’d said and now regret what they had done”.

Speaking at a Senate estimates hearing on Monday, Dr Lowe also said he was “very glad” workers were receiving higher pay, and he did not anticipate increases in labour costs would be high enough to trigger a 1970s-style wage-price spiral, although he insisted it remained a risk that must be recognised and avoided.

The RBA board in late 2020 and through most of 2021 told the country it did not expect rates to rise from a historic low of 0.1 per cent for “at least three years”, or not until “2024 or later”.

Instead of having several years to get ahead on mortgages, new buyers who borrowed at their limits this year have faced 2.75 percentage points in rate rises in seven months, the most ­aggressive hiking cycle in a generation.

Dr Lowe said “at the time I thought that (saying he did not expect to lift rates for years) was the right thing to do”, but “looking back, we would have chosen different language”.

“I’m certainly sorry if people listened to what we said, and then acted … and now regret what they had done,” he said.

The RBA governor, however, said the decision to give the no rate-rise guidance needed to be contextualised.

“In 2020 and 2021, the country was in a dire situation, and we wanted to do everything we could to get the country through that, and we had a strong insurance mindset,” he said.

Dr Lowe said at the height of the pandemic, there had been forecasts of 15 per cent unemployment and fears of “a generation of young kids not being able to find jobs … and we decided to do whatever we could”.

“Given the dire outlook, we thought it was unlikely that inflation would pick up quickly and we wanted to send a message that interest rates were going to stay low for a long period of time,” Dr Lowe said.

“At the time I thought that was the right thing to do, ex post, the economy recovered much more quickly than anyone expected, and we’ve had to raise interest rates more quickly, and people who borrowed in those two years are now finding it much more difficult,” he said.

“Looking back, we would have chosen different language. People didn’t hear the caveats.

“That’s a failure on our part: we didn’t communicate the caveats clearly enough.

“The community heard 2024, they didn’t hear the conditionality, and that’s partly our fault.”

Dr Lowe also said Australia had “a better chance than almost any other advanced economy” of ­taming inflation without triggering a deep recession, and that he didn’t expect increases in labour costs would go high enough to trigger a 1970s-style wage-price spiral.

“For many years I’d been complaining that wage growth was too low,” Dr Lowe said.

“We are very glad to see a pick-up in nominal wages growth.

“And the aggregate (wages ­figures) at the moment are not particularly concerning, so that’s good news.

“What I’ve been doing recently is flagging the risk that we could go too far.

“I don’t think we’re going to, but we could.”