This article is from the Australian Property Journal archive
THE Reserve Bank of Australia governor (RBA) Philip Lowe has sensationally apologised to the thousands of Australians who took out mortgages on the RBA’s guidance that interest rates would stay at their record low until 2024.
Lowe was appearing before the Senate Economics Committee on Monday and was asked by Greens senator Nick McKim if he owed an apology to those who took out mortgages based on the RBA’s and Lowe’s advice of 2020 and as recently as November last year that conditions for a rate rise were not expected “until 2024 at the earliest”.
“Well, I’m certainly sorry if people listened to what we’d said and then acted on what we said, and now regret what they have done,” Lowe said in response.
“So that’s regrettable. I’m sorry that that happened.
“I’m sorry that people listened to what we’d said and acted on that and now find themselves in a position they don’t want to be in. But at the time, we thought it was the right thing to do, and I think looking back we would have chosen different language. People did not hear the caveats.
“That’s a failure on our part. We didn’t communicate the caveats clearly enough.”
The RBA has made seven consecutive hikes to the official interest rate, which sat at 0.1% earlier this year and is now at 2.85% as the bank tries to combat runaway inflation, which the RBA is expecting to hit 8% this quarter.
The RBA is expected to lift the interest rate again at its board meeting next Tuesday, and it is forecasting inflation will not return to its 2% to 3% target band for at least two years.
The apology comes a few weeks after the RBA’s deputy governor Michelle Bullock told the Committee it was “caught by surprise” by the strength of inflation at home and abroad.
Aussies are expected to pay an extra $815 a month – or $10,000 a year – for a $500,000-plus mortgage. The RBA is expecting inflation to slow from “around 8%” by the end of this year to 4.75% by the end of 2023 and to slightly above 3% by end-2024.
Lowe yesterday defended giving the guidance at the time, saying the RBA has a “strong insurance mindset”
“We were thinking, ‘well, what can go wrong here?’ And the things that (could) go wrong was really, really bad’.
“We were talking about 15% unemployment, a generation of young kids not being able to find jobs, people not being able to go to school and university. It was dire times, and we decided that we would do everything we could.”
He said the moves to inject stimulus into the economy was the “right thing to do” at the time, but “we didn’t get the forecast right”.
“I thought it was better doing too much than too little,” he said.
McKim said that while Lowe has “appropriately apologised, the actions taken under his leadership have led to a significant loss of trust in the RBA”.
Asked if Lowe should resign, Prime Minister Anthony Albanese said he retained confidence in the governor.
“We have confidence in Dr. Lowe and his position as the head of the Reserve Bank,” he said.
Lowe’s seven-year term ends in September next year.
