When Philip Lowe fronts Senate estimates on Wednesday and the House of Representatives’ economics committee on Friday, the governor of the Reserve Bank of Australia will be peppered with questions about the central bank’s performance and thinking.
Here are four key issues he and his RBA colleagues will likely be asked about during the review of the central bank.
Why is the RBA so confident more rate rises are needed?
The RBA lifting the cash rate another 25 basis points last week was not a surprise, but words that “further increases in interest rates will be needed over the months ahead” stunned some observers.
We got more insight into the RBA’s logic with the release of its quarterly statement on monetary policy on Friday. “Inflation is likely to have peaked around the end of 2022 and is forecast to return to the target range over coming years,” the RBA said, echoing its forecast in November, even if that return is going to take a tad longer.
If we are around the inflation peak and peering down the other side, why was Lowe so sure that more rate hikes were still required before a pause?
The Australian Bureau of Statistics will release December quarter wages data on 22 February, and perhaps Lowe is seeing early signs of a spike. Or is the pent up, post-Covid “revenge spending” by households and businesses stronger than the gauges of their sentiment would otherwise suggest?
What would it take for the RBA to change tack on rates?
In his December statement on the cash rate, Lowe said the RBA was “not on a pre-set course”. But such words were absent from his comments last week. So what evidence would make the RBA board more open to pausing rate hikes or even start to cut them?
Would a weak inflation outcome for the March quarter – due for release on 26 April – be enough to prompt a pause? Or an acceleration of falling property prices? (Property prices are now falling about 1% a month, CoreLogic has said.)
Timo Henckel, an economics researcher at the Australian National University, notes Lowe may have a view on whether governments – not just the RBA – should be shouldering more responsibility for fighting inflation.
Business behaviours and profits may also bear more scrutiny, not just their debt levels.
The ACTU, in its submission to the review of the RBA, said the central bank “warns darkly about rising costs [but] the growing importance of profits in driving higher prices is not mentioned”.
“This reflects an ideological bias that wages are a cost item that must be tightly controlled, while profit is assumed to be a legitimate reward to businesses that efficiently supply the market with something valuable,” the ACTU said.
Why should Lowe have his job extended?
It is not the first question economists or money market traders would likely ask, but Lowe is appearing before politicians. Lowe’s seven-year term is due to end on 17 September this year.
Since admitting he was wrong to say the RBA’s cash rate could remain at its record low 0.1% until 2024, Lowe has become a popular target for those looking to pin blame for the record run of rate rises, which is now up to nine in a row.
The Albanese government won’t want to “own” the rate hikes and extending Lowe’s term might look like a tick of approval. And the Coalition may still be bitter over the RBA kicking off the rate hikes during last May’s federal election campaign.
The Greens treasury spokesperson, Nick McKim, wants the government to demand Lowe’s resignation, not least for his view in September that “most of the time [higher rates don’t] have a direct impact on rent”. Renters, facing 10% rises in 2022, might disagree.
“Rightly or wrongly, I cannot imagine a scenario where he gets reappointed,” one economics academic, who speaks to Lowe, told Guardian Australia. “Just the politics of that strikes me as being completely determined.”
Why hasn’t the RBA been more transparent in early 2023?
By Wednesday the RBA will have gone two full months without a senior official speaking in public. Granted, there is no January board meeting, but not all senior staff have been on leave, nor were financial markets in hibernation.
Last week’s rate rise was accompanied by a scant 10 paragraphs of commentary. No other public meetings are scheduled, save the two this week before MPs, and Lowe also avoided giving the usual annual address before the National Press Club to kick off the year. (The RBA has not ruled out a press club speech later in the year.)
RBA executives do meet markets, business and community groups under the Chatham House rule. Lowe attended a lunch with bankers last Thursday in Sydney, as the AFR reported (after participants disregarded those rules). The RBA assistant governor Luci Ellis was due to appear at a similar event on Wednesday but will no longer attend, the bank says.
Still, the panel conducting a review of the RBA is due to hand over its report to the treasurer, Jim Chalmers, within weeks, and transparency is likely to be among the review’s recommendations.
Lowe might say the RBA has not strayed from its course and more speeches were not essential.
