Interest rates have not hit “peak” levels: Heat Turns up on RBA Governor 

17th Feb, 2023 | Interest Rates, In The News

In this article:
The pressure continues to mount on RBA's Governer following latest cash rate announcement.

Mark Bouris says that the Reserve Bank of Australia’s Governor, Dr Philip Lowe, is going to “live by the sword, and die by the sword” as the pressure mounts on the RBA following February’s ninth consecutive cash rate increase. 

Joining Peter Stefanovic on Sky News this week, Mark Bouris discussed the public reaction to the RBA’s decision to keep hiking interest rates, inflicting more pain on mortgage holders. 

“Probably [Philip Lowe’s] biggest mistake, in hindsight, was what he said a year ago in terms of talking about interest rates not going up until 2024,” said Bouris.

“But that was based on data that he had at the time. By the way, there’s something like 500 economists that sit in the Reserve Bank, and they’re all building the advice up to a recommendation level, which is then given to the Reserve Bank Board, and based on the recommendations, the board makes its decision.”

When asked whether Dr Lowe was the right man for the job or whether someone else should be leading Australia’s monetary policy, Bouris said: “intellectually? Probably, yes.”

“But in terms of building confidence in the economy, as the main man, the person who we all look to for guidance for the future, I would say probably at this stage, no, because the media is jumping all over him, the government’s going to jump all over him.”

“He’s going to be the person to blame in relation to what’s going on in the country’s economy, which by the way, is not possible, but he’s going to get blamed for everything. So I’d say in terms of confidence, public confidence, he’s probably not the right man for the job right now, but, intellectually, as someone who understands what makes this economy run, I’d say he probably is the right guy.”

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RBA Governor Faces up to Senate Enquiry:

On Wednesday, Dr Lowe had to give a ‘please explain’ to a Senate Estimates Committee in Canberra. 

For well over an hour, Dr Lowe was grilled about the RBA’s decision to increase rates nine consecutive times, and why more potential rate rises were the only way to avoid inflation getting out of hand. 

Here are four key takeaways from Dr Lowe’s appearance:

What does the RBA consider before making a decision on whether to decrease, hold, or increase interest rates?

Many factors, but for the RBA, “the decision making really is centered on the inflation target. Inflation at the moment is 7.8%…that is way too high,” said Dr Lowe. 

“We’re looking at the data on inflation, data on the labor market, how household spending is evolving and how the global economy is evolving.”

He understands the scrutiny he is now facing

Dr Lowe said that he doesn’t think “it’s unfair” that he is facing the blame for high interest rates.

“It’s the job of the central bank to control inflation and to make sure that inflation expectations don’t adjust and we avoid all those terrible things. It’s just me, it’s the board, there are nine of us who make these decisions and we make them collectively.”

The RBA listens closely to the real world people who are bearing the brunt of interest rate increases. 

Dr Lowe mentioned on multiple occasions that the RBA is always keeping a close ear to the ground and considering the real world impacts of the central bank’s decisions:

I get a lot of people writing to me at the moment telling me they’re about their personal circumstances and it’s really, really tough and we understand that. I read those letters and hear those stories with a very heavy heart.”.

“I find it kind of disturbing, people are really, really hurting. I understand that but I also understand that if we don’t get on top of inflation it means even higher interest rates and more unemployment.”

“Ultimately all of our policies are created to help people. That’s what the Reserve bank is about. We want people to have jobs, we want their savings protected, we want them to have low rates of inflation. So that can sometimes seem abstract, but it’s always about people: having people with good jobs, rising real wages, keeping their savings safe. That’s what we talk about at every single one of our board meetings.”

“We have to make complex decisions, and when we make those decisions, we rely on a whole range of information.”

“The reserve bank is not just me. We’ve got a fantastic team and they’re out there… We’ve got community and business liaisons on the team and their job is to go and talk to business and community representatives and they share with me what they’re hearing and then sometimes I’ll have the opportunity to directly engage with the community sector as well and I welcome opportunities to do that.”

Are further rate hikes coming?

It’s very likely. Dr Lowe has previously warned Australians that further rate hikes are on the horizon and he doubled down on this commentary this week by adding: I don’t think we’re at the peak yet, but how far we have to go up, i dont know. it’s going to depend.

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