Photo: Lucas Coch/AAP
When Philip Lowe faces Senate estimates on Wednesday and the House of Representatives economics committee on Friday, the governor of the Reserve Bank of Australia will face questions about the central bank’s performance and thinking.
Here are four key questions he and his RBA colleagues are likely to be asked during the central bank review.
Why is the RBA so confident that more rate rises are needed?
The RBA raising the cash rate by another 25 basis points last week was no surprise, but the words “further increases in interest rates will be needed in the coming months” made some observers wonder.
We got more insight into the RBA’s logic with the release of its quarterly monetary policy statement on Friday. “Inflation is likely to peak around the end of 2022 and is expected to return to the target range in the coming years,” the RBA said, echoing its November forecast, even if that outcome take a little longer.
Related: Jim Chalmers is confident Australia will avoid recession despite warnings of more interest rate rises
If we are past the peak of inflation and looking down the other side, why was Lowe so convinced that more rate hikes were needed before a break?
The Australian Bureau of Statistics will release Christmas quarter wage data on February 22, and Lowe may have seen early signs. Or is the post-Covid “revenge spending” by households and businesses stronger than sentiment gauges would otherwise suggest?
What would it take for the RBA to change its hold on rates?
In his December statement on the cash rate, Lowe said the RBA was “not on a predetermined 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 starting to cut them?
Will a weak inflation result for the March quarter – due for release on April 26 – be enough to prompt a pause? Or an acceleration of falling property prices? (Property prices are now falling by about 1% per month, CoreLogic said.)
Timo Henckel, an economic researcher at the Australian National University, notes that Lowe may have a point about whether governments – not just the RBA – should be taking on more responsibility for fighting inflation.
There could be more scrutiny on business behavior and profits, not just their debt levels.
Related: What the experts think about the RBA’s interest rate rises – and what they say is coming
The ACTU, in its submission to the RBA review, said the central bank gives a dark warning about rising costs. [but] the increasing 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 for businesses that effectively provide something of value to the market,” the ACTU said.
Why should his job be extended?
It’s not the first question economists or money market traders would likely ask, but Lowe appears to be facing politicians. Lowe’s seven-year term ends on September 17 this year.
Since admitting he was wrong to say the RBA cash rate could remain at a record 0.1% until 2024, Lowe has become a popular target for those who want to blame the number a record number of rate increases, which are now up to nine in a. apart.
The Albanian government will not want to “own” the rate hikes and extending Lowe’s term could be a tick of approval. And the Coalition could still be bitter about the RBA kicking out the rate hikes during the federal election campaign last May.
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Greens treasury spokesman Nick McKim is calling for the government to demand Lowe’s resignation, particularly because of his comment in September that “most of the time [higher rates don’t] have a direct impact on rent”. Renters, who are facing 10% increases in 2022, might agree.
“Right or wrong, I can’t imagine a situation where he will be reappointed,” one economics academic, who speaks to Lowe, told Guardian Australia. “That politics alone strikes me as absolutely convincing.”
Why wasn’t the RBA more transparent in early 2023?
By Wednesday the RBA will have gone two months without a senior official speaking publicly. Granted, there’s no board meeting in January, but the senior staff weren’t all on vacation, and the financial markets weren’t during the winter.
Last week’s rate hike was accompanied by 10 small commentary items. No other public meetings are scheduled, except for the two this week before MPs, and Lowe avoided giving the usual annual address to the National Press Club to start the year. (The RBA did not rule out a club press speech later in the year.)
RBA executives meet with markets, business and community groups under Chatham House rules. Lowe attended a lunch with bankers last Thursday in Sydney, as reported by the AFR (with participants ignoring those rules). 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 reviewing the RBA is due to report to the treasurer, Jim Chalmers, within weeks, and transparency is likely to be among the review’s recommendations.
Lowe could say that the RBA has not strayed from its course and that more speeches were not necessary.