This article is from the Australian Property Journal archive
RBA governor Phillip Lowe faced a grilling from the senate estimates committee as he defended his position while speaking at depth about the effects of inflation.
Consecutive interest rate rises have ultimately led to the steepest annual rate hike since 1990. In response, questions have been asked of Lowe whose position has faced great scrutiny.
Lowe made the now-controversial claim in late-2021 that interest rates wouldn’t rise until 2024. With interest rates changing as soon as 2022, Greens senator Nick McKim not holding back.
“Can you explain to the renters and mortgage holders of Australia why you still deserve to hold your job?” McKim pressed.
Despite the heavy pressure – which has been increased after a further rate hike to 3.35% last week – the RBA governor continued to defend his role.
“It’s an important job that comes with public accountability and as part of the process, but I intend to serve out that term,” he said.
“The decisions that the Reserve Bank made are made by a board of nine people. It’s not just me. We make them collectively and collaboratively, and the board has made these decisions, and I think it would be a very bad outcome for the board if I resign.”
According to Lowe, the thing that affects the fate of interest rates is simply inflation. Inflation is currently at 7.8%, the highest in 32 years. The topic of inflation and the danger of it was a recurring point Lowe was making to the committee.
“The Reserve Bank Board meets every single month, and we look at each of those things each month to make an evaluation of the outlook for inflation – and it’s as I’ve said, way too high, and it needs to come down.”
He also warns of the destructiveness inflation can have. The RBA governor suggests that interest rates will only get worse with further inflation. He also believes that in line with inflation, wage increases will follow too.
“If inflation stays high, it’s very damaging for the economy. It worsens income inequality. It makes it harder for businesses to plan, and erodes the value of people’s savings.
“It’s corrosive to the economy and all the evidence is that if inflation stays high for too long, expectations adjust and that ultimately leads to higher interest rates and more unemployment.”
“It’s on 30 years since we had higher inflation, and many people have forgotten the really serious damage that does to people, to livelihoods, the functioning of the economy if it persists. And it leads to higher interest rates, and more unemployment, and we really want to avoid that.”
Lowe admits that the RBA is currently navigating a ‘narrow path’ where there are risks in both directions. While having sympathy for the plight of many Australians, he understands his decisions won’t please everyone.
“It’s unpopular. And it’s the job of the central bank to do sometimes what’s unpopular in the national interest. And that’s what we’re doing,” he said.
With economists fearing the chances of a recession in Australia as a result of the interest rate hikes, the pressure will only continue to mount.
Phillip Lowe will return to the committee on Friday for a 3-hour session of further questioning.
