Philip Lowe has used his final public comments as governor of the Reserve Bank to defend his more controversial comments, saying while some of his explanations had “missed the mark” the media also had a responsibility to avoid “clickbait”.
“Raising interest rates and tightening policy can make you very unpopular, as I know all too well,” Lowe told a Sydney function on Thursday for the Anika Foundation. “This means that it is easier for an independent central bank to do this than it is for politicians.”
Lowe, though, said some of his own explanations had “missed the mark”, but the media had its own responsibility to ensure the “public square is filled with facts and nuanced and informed debate, rather than vitriol, personal attacks and clickbait”.
Lowe pointed to a range of comments attributed to him that he said had not made “a promise that interest rates would not go up until 2024; everybody needs to get a flatmate; people need to work more hours to make ends meet; and young adults should stay at home because of the rental crisis”.
Lowe said in June: “Higher prices do lead people to economise on housing … Kids don’t move out of home because the rent is too expensive, so you decide to get a flatmate or a housemate because that’s the price mechanism at work.”
Referring to a recent television piece on him, Lowe said: “Nor did I choose Justin Timberlake’s Can’t Stop the Feeling to accompany me as I walked to a recent podium.”
“Despite these difficulties, I have always felt a responsibility to explain complex ideas, and the trade-offs and uncertainties we face,” he said.
The Albanese government opted not to prolong Lowe’s seven-year tenure, unlike his two predecessors – Ian Macfarlane and Glenn Stevens – who had extensions out to 10 years. His role runs until 17 September after which Michele Bullock, the first woman to head the RBA, will take over.
Lowe’s fate was probably sealed by public anger of the RBA’s record run of interest rate increases that added four percentage points to borrowing costs in a 13-month stint starting in May 2022.
Economists, though, increasingly think the central bank’s rate hikes are over as the economy continues to slow and inflation eases back. With the cash rate plateauing at 4.1%, his successor, Bullock, may preside over a lengthy spell of stability.
Jonathan Kearns, who worked as a senior RBA official alongside Lowe before leaving in February to become chief economist at Challenger, said he expected the outgoing governor will be remembered more favourably than now for “his commitment, intellect and optimism through the pandemic”.
However, he said there would be “always be a footnote” to Lowe’s career highlighting his predictions in late 2021 that the RBA would leave rates unchanged until 2024.
“The commitment was always given as conditional, so I guess the error was allowing it to be reported as being unconditional and taken that way by the public,” Kearns said.
In his speech, Lowe said inflation had averaged 2.7% during his time as governor, and the unemployment rate had dropped from the 5.5%-6% range to about 3.5%, near half-century lows. Quarterly headline inflation, though, had become more variable, than in the previous two decades, ranging from minus-0.3% to 7.8%.
“My view is that it will be difficult to return to the earlier world in which inflation tracked in a very narrow range,” Lowe said. “The increased prevalence of supply shocks, deglobalisation, climate change, the energy transition and shifts in demographics mean either steeper supply curves or more variable supply curves.”
“While this doesn’t mean that the inflation target can’t be achieved on average, it does mean that inflation is likely to be more variable around the 2%-3% target, he said.
Lowe gave few hints about his view on the future of interest rates other than to point to the “environment of stronger growth in nominal wages, which is positive”.
“My recent focus has been the risk that the period of high inflation could lead to wages growth and profits running ahead of the rate that is consistent with a sustainable return of inflation to target,” Lowe said.
“While recent data provide some comfort on this front, we need to remain alert to this risk for if it were to materialise, inflation would become sticky, which would require tighter monetary policy and more economic pain later on,” he said.
Lowe said monetary policy was a “powerful instrument”, but had its limitations and its effects were “felt unevenly across the community”.
He said fiscal policy – run by governments – could “provide a stronger helping hand” but that required “rethinking of the existing policy architecture”. That could include creating an independent body with “limited control over some fiscal instruments”.
Lowe said Australia’s high cost of housing was “a serious economic and social problem”, but interest rates weren’t to blame. The issue could be tackled with measures, including how governments regulated urban land and “how we tax land and housing investment”.
