Philip Lowe has denied saying interest rates wouldn't be lifted until 2024 as an independent review into the reserve bank is set to examine the effectiveness of its communication.
Philip Lowe has denied saying interest rates wouldn't be lifted until 2024 as an independent review into the reserve bank is set to examine the effectiveness of its communication.
Those comments were made this morning during a parliamentary hearing in which Dr Lowe was pressed on the board’s decision to lift the cash rate target by 2.25 basis points since April.
While conceding the increase had come quicker than expected, Dr Lowe argued the rate of CPI growth, which was 6.1 per cent in the year to June, had necessitated a change in approach.
He denied he or the board had ever backed keeping the cash rate target at 0.1 per cent until 2024 as has been widely claimed, despite having repeatedly said the board was unlikely to lift it until certain economic indicators, namely sustained increase in real wages, had been satisfied.
Many observers have since chastised Dr Lowe and the RBA board for reversing course, with Greens Senator Nick McKim calling for the RBA boss to step down in light of recent rate hikes.
“I am frequently reminded that many people interpreted our previous communication as a promise, or a commitment, that interest rates wouldn't rise until 2024,” he said.
“This was despite our statements on interest rates always being conditional on the state of the economy.
“This conditionality often got lost in the messaging.
“We are currently working through the implications of this for our future approach to forward guidance and communication more generally.”
Dr Lowe’s remarks come one day after Treasury released an issues paper detailing the themes of its independent review into the RBA.
They include monetary policy arrangements, such as the role of lower interest rates and supply-side shocks, the bank’s performance in keeping inflation within its target band and achieving full employment, and the bank’s governance.
Communication by the reserve bank will also come under the microscope, with the review's authors noting improved signalling may influence the public's inflation expectations.
While the review will look at matters such as recording the votes of individual board members, shadow treasury spokesperson Angus Taylor has insisted the review not dilute the bank's focus of keeping inflation under control.
That function is likely to be preserved given the review doesn't suggest the bank abandon its goal of maintaining currency stability.
Treasury's review comes months after the RBA completed its own internal review into the use of a three-year yield target at the onset of the pandemic.
Further reviews of the reserve bank's bond purchase program and approach to forward guidance are due before the end of the year.
Dr Lowe told parliament this morning that the board was committed to bringing inflation back into the 2 to 3 per cent target band, with further cash rate increases firmly on the table.
“At some point, it will be appropriate to slow the rate of increase in interest rates and the case for doing that becomes stronger as the level of interest rates increases,” he said.
“As I have said previously, the size and timing of future interest rate increases will be guided by the incoming data and the board's assessment of the outlook for inflation and the labour market.”
