Australia’s central bank chief Philip Lowe acknowledged interest-rate rises are unpopular, while adding he finds it “unfair” that blame for them is directed solely at him, as he reiterated plans to serve out his term.
(Bloomberg) — Australia’s central bank chief Philip Lowe acknowledged interest-rate rises are unpopular, while adding he finds it “unfair” that blame for them is directed solely at him, as he reiterated plans to serve out his term.
“It’s the job of the central bank to control inflation,” the Reserve Bank governor told a senate panel in Canberra Wednesday, in his first public remarks of the year. “I find sometimes that it’s all sheeted down to me and that’s a bit unfair because it’s the board.”
Lowe said the nine-member board collectively takes policy decisions each month, based on the advice of “a large” central bank staff. As a result, he said, it’s not just him.
The governor has faced a mounting backlash over the RBA’s aggressive tightening that’s driving up repayments for Australian borrowers, who are among the most leveraged in the developed world.
Lowe has also struggled with communications, most recently eight days ago when he signaled further rate rises to come, just weeks after saying the board had considered a pause in December.
The governor gave no ground to senators when questioned over rate hikes to try to contain rising prices. Inflation is “way too high,” he said, while adding that he didn’t think borrowing costs had reached their peak yet.
“We want to get inflation down because it’s dangerous,” Lowe said. “It’s corrosive, it hurts people, it damages income inequality and it if stays high it leads to higher interest rates and more unemployment.”
He added though that policymakers also “want to preserve” recent employment gains, saying they’re navigating a “narrow path” of trying to bring down price pressures without damaging the economy.
“It’s not guaranteed but there’s a chance we can do it,” he said.
In response to the comments, government bond yields slipped as traders wagered the RBA won’t drive the economy into recession. Yields retreated about 7 basis points by the end of the testimony.
Money markets currently reckon the RBA will hike three more times this year to take the cash rate to 4.1% by August, from 3.35% at present, while economists’ median estimate is a 3.85% terminal rate.
The RBA has hiked by 3.25 percentage points since May to tackle inflation that has buffeted economies across the developed world. Data overnight showed US consumer prices rose briskly in January, potentially pushing the Federal Reserve to take rates higher than anticipated.
Australia’s consumer prices soared 7.8% in the final three months of 2022 and the central bank forecasts inflation won’t ease back to the top of its 2-3% target until mid-2025.
“The message is loud and clear. Inflation is too high,” said Su-Lin Ong, chief economist for Australia at Royal Bank of Canada. “The narrow path is becoming a tightrope and the RBA communication this year has shifted to a greater willingness to slip off this path.”
The governor, during today’s one-and-a-half hours of testimony, comfortably parried questions on rates pushing too high, the inflation challenge and his future at the bank from the senators who focused heavily on politics.
Lowe’s challenge increases markedly on Friday when he attends the semi-annual house committee to face three hours of probing by lawmakers who are highly economically literate and likely to question his assumptions.
Bullock, Wilkinson Named Among Potential RBA Successors to Lowe
The governor pushed back against calls from the Greens party for him to resign.
Lowe’s seven-year term expires in mid-September and speculation is mounting he won’t be offered an extension. The governor didn’t broach the issue of whether he still wants to be reappointed.
Treasurer Jim Chalmers has said the findings of an independent review of the central bank — due at the end of March — will help guide him, with a decision expected around midyear.
“I have a seven-year term as the governor of the bank and I intend to serve out that term,” Lowe said today. “I think it would be a very bad outcome for the board to have to resign.”
–With assistance from Victoria Batchelor.
(Adds charts, comment from economist.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.