For a man under so much pressure, Philip Lowe smiles a lot. Throughout his 90-minute appearance before the senate economics committee’s budget estimates hearing on Wednesday, the Reserve Bank of Australia governor was variously explanatory, defensive, defiant, even a little remorseful – all while wearing a look of modest good cheer. He did not apologise for bringing mortgage-holders and renters what he acknowledged was financial misery by raising the official cash rate nine consecutive times, nor for intending to do so again.
“I get a lot of people writing to me at the moment telling me about their personal circumstances and it’s really, really tough,” Lowe said. “I understand that. And you know, I read those letters and hear those stories with a very heavy heart. I find it personally... it’s disturbing. People are really, really hurting and I understand that. But I also understand that if we don’t get on top of inflation it means even higher interest rates and more unemployment.”
Communication is a key focus of criticism levelled at Lowe and his board, and Treasurer Jim Chalmers revealed last weekend that he is particularly concerned about how the bank conveys its decisions and their context. An assessment of the RBA’s record in this regard falls within the remit of the review Chalmers commissioned, which is considering four themes: the bank’s approach to monetary policy, its performance against objectives – of which curbing inflation is foremost – its governance and its culture.
Chalmers will receive its findings on March 31 and release them before the May budget. He must then decide whether Lowe’s term should be extended, as were those of his two most recent predecessors, beyond its expiry in September.
“I have a seven-year term as the governor of the bank and I intend to serve out that term,” Lowe said on Wednesday. “It’s an important job. It comes with public accountability.”
While the criticism extends to his fellow board members, Lowe is bearing the brunt.
“It’s not just me,” the governor agreed, when Liberal senator and shadow Finance minister Jane Hume suggested he was being unfairly singled out. “I find sometimes the fact that it’s all sheeted down to me is a bit unfair, because it’s the board.” Sweeping deputy governor Michele Bullock into the frame, he said: “There are nine of us, including
Michele, who make these decisions. And we take them collectively.” Earlier that morning, Treasury secretary and fellow board member Steven Kennedy defended Lowe during his own estimates appearance.
“The criticisms or otherwise of the interest rate decisions apply to the whole board, not just the governor,” Kennedy said. But he also acknowledged that the governor is responsible for talking about those decisions. And Lowe acknowledged, if indirectly, that his explanations have not always been well received.
“I’m the spokesman for the board on monetary policy,” he said. “That’s what they’ve agreed, for better or for worse.”
The communication criticisms are two-fold: that Lowe engages too infrequently with the public and that when he does, the message he seeks to convey is not always the message received. He has apologised for repeated public statements throughout 2020 and 2021 that rates were unlikely to rise before 2024. While continuing to insist the comments were always qualified, he has conceded they were heard as a promise, and some people may have made purchasing decisions accordingly.
The governor’s unflappable manner is surely an asset in a high-pressure environment. But some observe that even after more than six years in the job, Lowe demonstrates little obvious awareness that people in boardrooms and lounge rooms who are poised to make financial decisions are hanging off his every word – a criticism that he apparently felt moved to address this week.
While he made no opening statement to the committee, Lowe was keen to explain why, two days after the board announced its ninth consecutive rate hike last week, he addressed a private lunch in Sydney, hosted by investment firm Barrenjoey. This small, invitation-only event was the day before the release of the bank’s quarterly statement on monetary policy, which flagged further rate rises.
Throughout his 90 minutes or so at the lunch, bond markets moved, prompting some of the uninvited to wonder aloud later what he might have said that was so interesting.
“There was,” Lowe emphasised, “nothing untoward here.” In case the senators missed it, he repeated the assertion, and then made it a third time. He also decried that some of his private commentary had been leaked to the media, remarking that such discourse normally involved the mutual “courtesy” of not proceeding to “run to the press”.
He said he had arrived at Barrenjoey at 12.30pm, began his address at 12.50pm and left at 2pm. Lowe insisted the markets had actually begun moving at noon and merely continued over that two-hour period. He noted similar had happened in New Zealand at the same time. The message was clear: it wasn’t anything he said, and he wasn’t going to stop doing it. But what he would change was the order in which he did things.
Independent economist Chris Richardson says the order matters, especially given the board’s initial brief statement accompanying the rate rise indicated that inflation would stay high for longer than anticipated and flagged that there were more rate rises to come.
“Given that their view is ‘oh dear, this is a bigger problem than we thought’, I think it was the right thing to do to get out and explain to the Australian public what they were trying to do,” Richardson says.
But that’s not what Lowe did. He abandoned his usual practice of starting the year by addressing the National Press Club and answering journalists’ questions before making his regular appearance at the house of representatives economics committee hearing, to which the senate estimates hearing was added this week.
He did so, he said, after someone suggested not that he was too quiet, but the opposite.
“One piece of feedback was ‘maybe you’re talking too much’,” he said. “And it is possible to talk too much. So I’ve been conscious of that. And the other piece of feedback I had was that to start the year, it’s better to address the questions of the parliament rather than the media.”
The house committee hearing date was then shifted back by a week, creating an opening in his diary, so he accepted the Barrenjoey invitation. He did not explain why, having decided it was important to speak publicly to parliamentarians before giving a televised address and facing the media, he did not consider whether first speaking privately to what Greens senator Nick McKim called “a bunch of bankers at the Barrenjoey banquet” might be a bad look.
Richardson is incredulous at that decision. “Nobody in that organisation seemed to realise just how inappropriate it was to privately brief bankers before speaking to the Australian people,” he says. “That worries me – that the governor didn’t see that and if anyone else did, they didn’t speak up to the governor. That was the moment when the Reserve Bank lost me.”
Nor is Richardson convinced that Lowe’s private words had no impact on the markets. “Whether or not he thought he said something, the people in the room thought he said something. And they voted with their dollars.”
His own advice would have been: “Move the lunch. Trust me, those bond traders will rearrange their schedules too.”
Lowe said he thought the order of things “was manageable” but now regretted attending the lunch first. He revealed that in future, in weeks when the quarterly statement was due, there would be no private lunches between the board meeting on the first Tuesday of the month and the statement’s release several days later.
“I accept the timing – people find that kind of difficult and if I’d had my time again, I’d do things differently,” he conceded.
However he insisted having such meetings was “appropriate”.
“I can’t live in a bubble,” he said. “I need to talk to people. I need to hear what financial markets say and I like asking people questions.”
His questions to the 15 to 20 fellow diners at the Barrenjoey lunch canvassed the resilience of household spending, the likely evolution of the labour market, the trajectory of wages and the impact of potential future supply shocks on inflation. He also asked how the bank’s messaging had been received. “I got mixed feedback on that,” he admitted.
Lowe told the senators he had spoken more extensively to them than he had to the bankers and traders. More rate rises were likely. He did not know how high they would go.
Richardson has no problem with Lowe and other senior bank executives talking to the market.
“But your first responsibility is to the wider public,” he says.
Peter Tulip, chief economist at the conservative Centre for Independent Studies, describes communication as “a very longstanding problem with the RBA”.
A former economic adviser to both the Reserve Bank and the United States Federal Reserve, Tulip compares the Australian bank unfavourably to its international peers.
“Almost all other central banks are more transparent than the RBA,” Tulip tells The Saturday Paper. “It has a culture of secrecy, which I think leads to serious mistakes in monetary policy.”
Then there’s the question about whether the RBA is canvassing the right views.
When the Greens’ McKim asked Lowe if the board considered the pain of struggling mortgage-holders and renters before making rates decisions, the governor cited a recent meeting with the head of the Australian Council of Social Service, Cassandra Goldie, as proof he wanted to hear about the stress on low-income earners.
Goldie tells The Saturday Paper the meeting was at her request. She seeks such conversations about every six months.
“Monetary policy has a huge impact on people living on low incomes, affecting prices, employment, poverty and inequality,” she says. “The RBA has a clear mandate with respect to the welfare of people.” She says the board should include people from outside the labour market and representatives of unions and the community sector. She also says the bank should adopt a full-employment target alongside its inflation target and align the two goals when decisions are made.
And the government should also step up, Goldie says. Rather than relying on “the blunt tool of interest rates”, it should take a more active role to temper inflation, including direct intervention on energy prices and housing rents and strengthening the competition watchdog.
Lowe told the committee that the bank’s key inflation tool – applying monetary policy by raising and lowering interest rates – is both “blunt” and “nimble”. That is, it doesn’t require a parliamentary vote to deploy, and is more effective than the fiscal policy tools at executive government disposal, which should be used for structural reform.
In discussing the economy this week, the treasurer introduced a new “three Rs” description of his policy.
“Relief where we can, repair and restraint,” Chalmers told ABC TV. “Those are the most important things that we can be doing right now.”
While the Coalition continued to insist that everything “would always cost more under Labor”, Chalmers said the government’s policy to cap gas prices was helping take the sting out of energy costs.
In his testimony, Lowe agreed this action could help, clarifying that there were measures governments could take “in parts of the economy to take the pressure off prices”. He declined Jane Hume’s invitation to declare that fiscal and monetary policy were working against each other.
He also sought to address a major criticism of the central bank’s decision to raise rates so persistently over the past year: that more of the inflation challenge comes from supply problems – arising particularly from the twin impacts of the Covid-19 pandemic and the war in Ukraine – than from overheated demand. Lowe insists demand still plays a part and therefore so do interest rates.
Media speculation about a possible replacement for Lowe has included former Bank of Canada deputy governor Carolyn Wilkins. Chalmers has appointed Wilkins to the RBA review panel and indicated this week he is receiving regular updates – confirmation that its findings will carry much weight.
Peter Tulip says Wilkins is a possibility, dismissing others’ concerns that her reviewer role should rule her out. He argues more experts in monetary policy are needed on the board and that the RBA’s troubles around communication are related to board culture.
“My view is that lots of these problems come from the structure of the bank board,” Tulip says. “Academics who run the central banks in other countries are just much more open and clear than the bureaucrats and businessmen that we have.”
Chris Richardson agrees with the need for more monetary policy experts on the board: “It’s a technical task.”
Jim Chalmers favours diversity, and is open to including union representation “on a case-by-case basis” rather than as a permanent fixture.
Peter Tulip interprets Chalmers’ refusal to commit on the governor’s future as pointing to the increasing likelihood of a change, and Lowe’s admission about his own judgement in the Barrenjoey controversy “makes it a lot easier”, if that is what the treasurer decides.
But he says Lowe performed well before the committee.
“My sense was that Phil Lowe deflected the criticisms that came at him fairly comfortably and, in fact, it was a bit surprising that there wasn’t more criticism,” he says.
Richardson describes Lowe as “a genuinely wonderful human being and a very good economist”, but he too detects the government distancing itself from the bank.
Lowe had pointed to paying down debt as key to helping the bank curb inflation, and warned that continuing to fund all the services Australians expect means finding a way to pay for them – code for budget cuts, or taxes. Richardson notes that Chalmers still commits only to saving “most” of any budget windfall from high commodity prices, not all.
“If you’re wanting to fight inflation you have to save more than the windfall,” he says, accusing the government of having “its hands on the wheel without actually turning the wheel”.
“I think they will hang this albatross around the bank’s neck,” he says of inflation. “I think they’ll probably leave the bank to fight alone.”
So does the opposition. In estimates, opposition senators defended the witness while government senators were noticeably silent. The Coalition accused government backbenchers and assistant treasurer Stephen Jones of mounting a “co-ordinated attack” against the governor and the bank, possibly to justify future decisions. The governor responded that he saw no such attacks on the bank’s independence.
The Greens were the governor’s harshest critics. Lowe rejected McKim’s assertion that he seemed prepared to “smash Australia into a recession”.
“We are trying to navigate a narrow path here. We want to get inflation down because it’s dangerous. It’s corrosive, it hurts people, it damages income inequality and if it stays high, it leads to higher interest rates and more unemployment.”
Speaking the day before official figures confirmed unemployment rose in January from 3.5 to 3.7 per cent, Lowe said he remains hopeful of succeeding on the narrow path and achieving “a soft landing” for the economy.
Whether or not he and the board can secure that for themselves, and he is still smiling in September, remains an open question.
This article was first published in the print edition of The Saturday Paper on February 18, 2023 as "Lowe regard: RBA governor fights for his job".
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