Aussies lash out at RBA’s broken promise after claiming there would be no cash rate hikes until 2024

For more than a year, the Reserve Bank kept repeating one crucial claim. Now, it has backflipped – and left countless Aussies out in the cold.

For months on end, the message from the Reserve Bank of Australia was clear – interest rates would not rise until 2024.

That message was repeated time and time again from late 2020 and throughout 2021, as Australia faced the devastating Covid pandemic.

In fact, for most of last year, the RBA issued the same repeated assurance: “The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.”

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Many Aussies feel RBA governor Philip Lowe broke a key interest rate promise. Picture: Britta Campion/The Australian

Countless Aussies took out mortgages over this period, at a time when house prices, and therefore mortgages, had never been more expensive, with many taking those crucial four words – “2024 at the earliest” – into consideration when making such a momentous life decision.

Then, in May this year, disaster struck when the RBA announced the first official interest rate hike since 2010, lifting the cash rate by 25 basis points to 0.35 per cent.

A month later, the RBA sucker punched homeowners again with a “super-sized” rate rise of 50 basis points, followed by yet another 50 basis point double whammy this week, with the cash rate now sitting at 1.35 per cent.

And that’s left a lot of Aussies very angry.

It's staggering how little is being said about how the RBA indicated interest rates would not rise until 2024 and how there's zero accountability for such a woefully inaccurate forecast. #abc730#auspol

— Jason Om (@jason_om) June 7, 2022

Don't listen to anything Philip Lowe says about interest rates or how high rates might go. He hasn't got a clue.
Six months ago he was saying no rate rise before 2024. He really has no idea. #RBA#auspol#finance

— Graeme Powell (@GraemePowell3) May 4, 2022

Many mortgage holders – especially younger Australians who bought into the nation’s famously hot housing market over the past 12 months or so – have been left feeling betrayed by the RBA over what they perceive as a broken promise.

But is that accusation fair?

RBA Governor Philip Lowe – who admitted earlier this year that he didn’t have a mortgage, and who rakes in a staggering base salary of $911,728 – told the ABC’s 7.30 last month that it was never a promise at all.

“Sometimes my comments get interpreted as me having made a promise, or a very strong statement interest rates would stay where they were to 2024. In our own communication, our own way of thinking, was very much a conditional statement,” he said.

Economist Chris Richardson told news.com.au that younger, less well off Australians would be disproportionately affected by the RBA’s aggressive, earlier-than-expected rate hikes, but said while the Board needed to lift its communication game, few could have foreseen the chain of global events that have sparked the latest woes.

“To be clear, I have thought similar things (to the RBA) about where interest rates would head and would need to head, and if people are wondering why the enormous change in gear from the Reserve Bank, it’s because stuff happened,” he said.

That “stuff” – the Ukraine war, floods in Australia and China’s ongoing Covid restrictions – seriously impacted supply chains, pushing up prices and accelerating inflation.

“The Reserve Bank thought interest rates would rise slowly and not soon, but then those three things happened, and the final thing was that Australia’s economic recovery was even better than expected, with the unemployment rate at a half-century low.

“That’s a good thing, but it does give us some inflation as well, and all those things to a greater or lesser extent were unexpected by the RBA.”

Fellow economist Saul Eslake agreed it wasn’t fair to criticise the RBA for being overly cautious at the start of the pandemic, as nobody knew how bad things could get – but said that the Reserve Bank’s biggest mistake was not responding fast enough once things started to improve.

The rate hikes will disproportionately hurt younger people who bought recently. Picture: David Swift

“The RBA can be criticised for having set monetary policy for a Depression-type scenario, which was the right thing to do, but it kept those settings at those levels long after the need for it passed,” he said.

In fact, the RBA was one of the last central banks to start raising rates again – and in another major error, it was the only one to put a date on when they would rise again.

“Most said they would keep rates low for a long time, or until some objective was reached, but no other central bank in the world put a date on it,” Mr Eslake said.

“While Philip Lowe would say it was always conditional, the reality is that was fine print that nobody reads any more than they read product disclosure statements.

“And even after the RBA dropped the reference to 2024, which it did in November last year, they still kept saying it would be a long time (before rates were raised).”

Mr Eslake said the RBA was now raising rates aggressively because it had “a lot of catching up to do” to bring it back in line with the rest of the world.

And Mr Richardson said the RBA’s communication had also been severely lacking at a time when it was never more important to keep the country in the loop.

The RBA has spooked families. Picture: iStock

“When Australians have never borrowed so much and the RBA’s decisions have never been this important to us, it’s important it treats us as adults who are part of the conversation,” he said.

“The RBA famously likes to be inscrutable … but that’s just not good enough, they have to be clear.

“I don’t have a problem with them changing their mind – if they take us into their confidence now and tell us what’s happening and what happens next and if that ultimately turns out to be wrong, that’s fine, but they need to keep explaining.”

Mr Richardson said the RBA’s lack of communication had spooked households.

“We’re still spending up a storm and interest rates haven’t started to have a big impact on the economy yet, but various measures of consumer sentiment show we’re almost as worried now as at any time since Covid first hit,” he said.

“It’s not good enough, and families don’t need to be as worried as the Reserve Bank has made them.”

Originally published as Aussies lash out at RBA’s broken promise after claiming there would be no cash rate hikes until 2024