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Philip Lowe’s tenure as Reserve Bank of Australia governor looks increasingly strained after he raised interest rates for the ninth time in less than a year.
Treasurer Jim Chalmers stopped short of endorsing Lowe on the job during an interview at the weekend, while four Labor MPs took the unusual step of publicly questioning whether his contract should be renewed when it expires in September.
The heat will intensify further this week when the $1 million-a-year-earning banker takes on two parliamentary committees to shed light on his failed forecasts.
At a barbecue in In November, he was forced to apologize to Australians who applied for mortgages based on central bank advice that rates would stay at near-record lows until 2024.
Instead, borrowers have been hit with sky-high costs that they hadn’t planned for.
Annual repayments are now typically $12,000 higher than in May 2022 and the Commonwealth Bank expects two more rate hikes by Easter that will make the cost-of-living crisis even worse.
Philip Lowe (pictured) left his luxury Sydney home last week to raise interest rates for the ninth time in less than 12 months, adding hundreds of dollars to Australians’ mortgages.
Australian home borrowers were crushed with a ninth consecutive interest rate hike in February with the Reserve Bank raising the cash rate to a new 10-year high of 3.35 percent.
Lowe’s seven-year term as RBA governor ends on September 17, but his two predecessors, Glenn Stevens and Ian Macfarlane, had their terms extended for another three years.
Chalmers was asked three times on Insiders on Sunday if Lowe was doing a good job, but he dodged the question and gave a guarded answer.
He has a hard job to do. You have to find the balance to overcome this inflationary challenge without crushing the economy… I’m not going to question the governor of the Reserve Bank,” he said.
I really respect your independence, as I’ve said probably hundreds of times, in the opposition and now in the government. I think that’s an important feature of the system.
He said a decision on whether to extend Mr Lowe’s term would be made by mid-year after the results of a comprehensive review that looked at the structure and accountability of the RBA to be handed over to the Treasurer by March 31.
Four Labor MPs – Rob Mitchell, Jerome Laxale, Graham Perrett and Julian Hill – have not expected the report and have already suggested that he should be shown the door when term ends.
“Fair or not, there have been credible and highly unusual sustained criticisms of [bank] trials in recent times,’ said Mr Hill.
In addition to recent rate increases that affected thousands of Australian families, Lowe has also been criticized for maintaining rates that were too high between 2017 and 2019, which according to some research could have cost a quarter of a million jobs.
He faced a wave of calls to resign last year after thousands of Australians took out a home loan based on RBA advice that the cash rate would stay at 0.2 percent until 2024.
As of February 2023, with the last increase of 25 basis points, the cash rate stands at 3.35 percent and further increases are anticipated.
Lowe apologized in November to the people who made sure the home loans were based on the RBA claim rates not going up and “now they’re in a position they don’t want to be in” (file image)
Giving the Anika Foundation speech in September, he said the RBA had made a ‘very big forecasting error’.
“I can assure you that I have no plans to resign,” he said. ‘The economy is much better than people thought it was going to be.
“Interest rates are higher, and I know people don’t like that, but you should be welcoming a stronger economy.”
But in November, as he led a Senate estimates hearing, he finally acknowledged that families were having a hard time because the RBA had gotten it wrong.
“I’m sorry that people listened to what we said and then acted on it and now find themselves in a position they don’t want to be in,” he said.
‘Looking back, we would have chosen a different language. The people did not listen to the warnings. I thought it was clear… but the community didn’t think it was clear.
“Well, they thought it was clear that we wouldn’t raise rates until 2024. That’s a failure on our part.”
Lowe will face another Senate estimates hearing on Wednesday of this week, followed by a House committee on Friday.
Borrowers with a $700,000 mortgage pay on average more than $1,000 more a month than they did a year ago (file image)
Treasurer Jim Chalmers (pictured) said Dr. Lowe has a “difficult job” but stopped short of saying he would like to see him stay in office.
NAB economist Taylor Nugent said there could be ‘fireworks’ given the government’s recent comments from MPs questioning Dr Lowe’s tenure as governor.
‘We will be looking for comment on the RBA’s balance of the risks of below average growth or a recession versus getting inflation back on target and what is the bar to stop the bullish cycle: how much slowdown in activity do you need? the RBA to watch,’ he said.
Commonwealth Bank economist Gareth Aird said the decision to raise the cash rate this month came with a “surprisingly aggressive” sign of more rate hikes to come.
‘It would be a big shock now if the RBA didn’t tighten up further. Despite that, we maintain that there is a strong case for a pause,” he said.
“Monetary policy is running on a lag and the RBA is flying blind as it has done an incredible amount of tightening that has yet to fully impact home borrowers’ cash flow and by extension spending decisions.” “.