Alan Kohler: The hubris of central bankers and the limits of money

The Reserve Bank's Philip Lowe is now advocating the same moves he once scorned, writes Alan Kohler. Photo: TND

In 2002, at the end of a two-year stint at the Bank for International Settlements (BIS) in Switzerland, Reserve Bank of Australia Governor Philip Lowe made a point for which he is still remembered in the economic salons of the world, and which he is now trying to put into practice.

He and a BIS colleague Claudio Borio wrote in a prescient paper: “…lowering rates or providing ample liquidity when problems materialise but not raising rates as imbalances build up, can be rather insidious in the longer run. They promote a form of moral hazard that can sow the seeds of instability and of costly fluctuations in the real economy.”