Reserve Bank of Australia Governor Philip Lowe admits he made mistake

Reserve bank governor Philip Lowe has admitted he made a mistake in suggesting that interest rates would not rise until 2024.

The economist responsible for setting monetary policy has repeatedly vowed that cash interest rates would remain at a record low of 0.1 percent in 2021 for another three years.

But dr. Lowe told the Canberra House Economics Committee that it was a mistake to make “conditional” comments on interest rates last year before Russia’s invasion of Ukraine pushed crude oil prices up.

“Some people think that was a mistake and it could very well be,” he said Friday morning.

Borrowers since May have endured five consecutive monthly rate hikes, with the 2.25 percentage point increase equating to the most severe monetary policy tightening since 1994.

The cash interest rate is now at its seven-year high of 2.35 percent, with Dr. Lowe Friday hinted at more interest rate hikes, with inflation expected to hit a 32-year high in 2022.

ANZ is now hinting that interest rates could continue to rise in 2023, after it was previously expected that spot interest rates would peak at 3.35% in 10 years in December.

dr. Lowe said he wouldn’t be specific with a date going forward when it came to interest rates, even talking about existing economic conditions.

“Our language will be vaguer,” he said.

He was adamant that his comments had been interpreted as promises when they were comments based on current economic conditions.

Inflation remained within the Reserve Bank’s target of two to three percent for most of last year.

Treasurer Jim Chalmers launched a review of the Reserve Bank’s monetary policy decisions in July, focusing on its communication strategy.

But dr. Lowe told the Canberra House Economics Committee that it was a mistake to make “conditional” comments on interest rates last year before Russia’s invasion of Ukraine pushed crude oil prices up.

Inflation in the year to June rose 6.1 percent, but the RBA and the Treasury now both expect it to hit a new 32-year high of 7.75 percent in 2022.

dr. Lowe told the hearing that the RBA was considering whether to raise the spot rate by 25 or 50 basis points, representing a 0.25 percentage point increase or a 0.5 percentage point increase.

ANZ released a new economic note on Friday, forecasting a 50 basis point rate hike in October with more rate hikes in 2023 – after previously forecasting spot rates to peak in 2022 amid this monetary policy tightening cycle.

‘Tightening can last until 2023’, according to the bank.

“We suspect a possible extension to 2023 will come after a pause of several months as the RBA tries to gauge how much inflationary pressures are easing after 325 basis points of rate hikes.”