Reserve Bank Governor Dr Philip Lowe has issued dire warnings and unusually candid policy advice as he faces the possibility of losing his job within days.
As he comes to terms with the prospect that Treasurer Jim Chalmers will not give him another seven years as the nation’s top banker, Dr Lowe on Wednesday outlined the dire consequences of failing to implement wage restraint.
He said big wage increases would push inflation up, which the RBA was “dead serious” about lowering the current rate of 5.6 percent to the target range of between two and three percent, which has led to 12 rapid rate hikes. .
In what may be his last public speech as Reserve Bank governor, Dr Philip Lowe (pictured Thursday) delivered some dire warnings and candid policy advice
“If we were to see Australia in the same situation as the US, Canada and the UK, where wages are rising by six per cent, it would have implications for shaping our monetary policy,” Dr Lowe told the Economic Society of Australia in Brisbane. .
“We will get inflation back to target, and we are going a bit slower than others because we want to keep gains in the labor market.
‘If it turns out that we can’t do that, we’ll have to take the plunge.’
This echoes comments Dr Lowe made in June that contradicted Dr Chalmers’ claim that higher wages are not fueling inflation.
Dr. Chalmers said last month that an 8.6 percent increase in the minimum wage had no impact on interest rates, which have risen 12 times in a year to quell Australia’s runaway inflation.
Dr. However, Lowe said that “compensating” workers for higher inflation would “get ourselves into trouble.”
“Because if you accept that premise, and inflation is seven percent, wage increases match that, what do you think inflation will be next year?” he said.
‘It will be high again and then you will have higher wage increases again.’
Dr. Lowe warned higher wages likely to be inflationary, echoing comments that have drawn him heavy criticism
It is comments like this that Dr. Lowe have been heavily criticized by MPs and unions, raising the likelihood that he will not be reappointed as RBA boss, even though a second term is normally a given.
Dr. Chalmers said on Wednesday that the government is considering the next appointment to the RBA governorship “in a methodical and measured and considered and advisory manner.”
“This is a decision for the Cabinet to follow my recommendation and I take the role of the Cabinet and the views of my colleagues very seriously,” said Dr Chalmers.
During his lunchtime address on Wednesday, Dr Lowe also said that the high rate of migration to Australia will drive up house prices regardless of interest rates.
In this and next financial year, approximately 715,000 people are expected to enter Australia on a work, student or other extended stay visa.
All these people coming in have to live somewhere,” Dr Lowe said.
This drives up rents and house prices.
“We thought that house prices would continue to fall this year, but that is not the case, they are rising quite strongly again in Sydney and that is partly due to the influx of immigrants.”
Dr. Lowe said the country’s political and business leaders urgently needed to invest in expanding Australia’s capacity to take in more people and make them productive.
The influx of 715,000 people on long-stay visas into Australia was something the country was not adequately prepared for, Dr Lowe argued.
“If we’re going to have a lot more people in the country, which is good, we’ll need the capital stock to support those people, otherwise the capital-to-labor ratio goes down and that’s bad for productivity,” he said.
“Population growth brings huge benefits to the country, but we need governments and companies to continue to invest to build a capital stock to support a stronger population.”
At the event, Dr Lowe was again forced to defend comments he made during the Covid pandemic that rates were unlikely to rise until 2024, predictions that have seen him lure people into big mortgages.
Dr. Lowe said his comments were the right thing to do amid the economic uncertainty of the pandemic.
“What we’re trying to do with our communications is tell people what we’re doing, why we’re doing it, what facts we’re taking into account,” he said.
“During the pandemic, we had a different approach because we thought we were in really dire circumstances then. We were explicit about what we thought was the path to interest rates and it turned out we were wrong.”
Treasurer Jim Chalmers (pictured with wife Laura Anderson arriving at June’s Press Gallery Midwinter Ball in Canberra) will decide the fate of Dr. Lowe
Asked if he wanted to continue as governor, Dr Lowe said he would be ‘honoured’ to keep the job.
However, if that did not happen, he promised to do everything he could to support his successor.