‘Unclear’ if more rate hikes needed, says RBA governor Philip Lowe

RBA governor Philip Lowe has offered hope to millions of mortgage holders after saying it remained to be determined if further interest rate hikes were required.

Reserve Bank governor Philip Lowe has not ruled out further interest rate hikes in the months ahead but says taming inflation has to be balanced with maintaining full employment for millions of Australians.

Mr Lowe told a Economic Society of Australia (Qld) business lunch in Brisbane on Wednesday that it had taken the country half a century to achieve full employment, something the bank had to take into account in the fight againt inflation.

“Unemployment is the lowest it has been in decades and there are huge economic and social benefits to that,” Mr Lowe told the lunch.

Mr Lowe conceded Australia had moved slower than other countries in raising rates but did not rule out the need to take action if inflation remained stubbornly high.

“We have taken the decision to go more slowly but the problem with that strategy, is that inflation stays too high for too long,” he said.

“We’re going slower than others because we want to preserve the gains in the labor market. If it turns out, we can’t do that we will have to take tougher decisions.”

Dr Lowe said that it remained to be “determined whether monetary policy has more work to do” but added that it was possible that there could still be further hikes to come.

“Whether or not this is required will depend on how the economy and inflation evolve,” he said. “The bank board will also have new readings on inflation, the global economy, the labour market and household spending to help inform its decision.”

The RBA decided to hold interest rates at 4.1 per cent this month — just the second pause after 400 basis points worth of hikes since May 2022. Rates are at the highest level since 2011, hitting millions of mortgage holders across the nation.

Dr Lowe said that it was appropriate to hold rates this month and re-examine the situation in August when it will have updated and current data.

“This is a significant and rapid tightening of monetary policy,” he said. “It is working to establish a better balance of supply and demand in the economy and bring inflation down.”

Noting that it will take time for households and businesses to adjust their spending and investment plans, Dr Lowe said there were still significant resets of low fixed-rate loans to come. “Given the lags, economic growth is expected to be subdued over the next couple of years and it will take time for inflation to return to target,” Dr Lowe said.

The Brisbane address comes as the Albanese government prepares to decide the fate of the governor with Treasurer Jim Chalmers confirming he would take his recommendation on Dr Lowe’s future to the next meeting of cabinet scheduled later this month.

Dr Lowe told the lunch he would be happy to continue serving in the role if asked but it was up to the government to make a final decision.

Mr Chalmers and Dr Lowe are due to fly to India for a G20 meeting of finance ministers and central bank governors this Sunday.

The RBA and Dr Lowe have been under fire from certain sections of the community for the most aggressive run of interest rates hikes on record as they attempt to combat inflation levels that hit a three-decade high in December. The rapid rise in interest rates have seen mortgage repayment increase by nearly 50 per cent in a little more than a year.

It comes as RBA works to implement recommendations from an independent review into the central bank that was released by Mr Chalmers earlier this year.

Among the changes will be that the RBA will meet eight times a year compared to the current 11 from February 2024. Dr Lowe said in his address that four of the meeting would be held on the first Tuesday of February, May, August and November, with the remaining to be held in between those dates.

The governor will also be required to front Australians at a media conference after the meeting to explain the interest rate decision it has made.

“The less frequent and longer meetings will provide more time for the board to examine issues in detail and to have deeper discussions on monetary policy strategy, alternative policy options and risks, as well as on communication,” Dr Lowe said.

Dr Lowe defended the current monetary policy framework of inflation being contained to 2-3 per cent, saying that these arrangements have served the country well.

Originally published as ‘Unclear’ if more rate hikes needed, says RBA governor Philip Lowe