Appearing before the Senate economics legislation committee, Reserve Bank of Australia (RBA) governor Philip Lowe said he plans to serve the remainder of his term despite calls for a premature end to his tenure.
Governor Lowe’s leadership had been called into question amid concerns the RBA’s nine consecutive hikes to the official cash rate would tip the Australian economy into an avoidable recession.
But Lowe said blaming the RBA’s strategy on his leadership was “unfair”, given cash rate movements are collectively determined by the nine-member monetary policy board.
“It’s not just me,” he said. “The fact that [the strategy is] sometimes sheeted down to me is a bit unfair because it’s the board, there are nine of us, who make these decisions.
“That’s the world we operate in, I’m not complaining about it, that’s our job.”
He said it was the RBA’s responsibility to contain inflation and “convince the community that we’re serious about it”.
“That’s our job and it’s unpopular,” he continued.
“I accept that, that’s why the central bank is independent from the decision making from the political process.”
Lowe went on to explain why the RBA had held fast to its tightening strategy, stressing inflation remained “way too high”.
“We want to get inflation down because it’s dangerous,” he said.
“It’s corrosive, it hurts people, it damages income inequality, and if it stays high, it leads to higher interest rates and more unemployment.”
Lowe reiterated the RBA remained focused on traveling the “narrow path”, conceding there may be bumps along the way.
“Our objective is to travel that narrow path as best we can. No doubt we’ll get buffeted around, and maybe we’ll get hit off it,” he said.
“But we want to bring inflation down and we want to preserve those really hard won gains in the labour market we’ve made.”
As for the trajectory of interest rates, Lowe said the central bank had an “open mind”, but added he did not believe the cash rate had peaked.
“How far we have to go up, I don’t know. It’s going to depend upon the inflation data, the resilience of spending, the strength of the global economy and what’s happening with prices and wages.
“But I don’t think we’re at the peak yet. But how far they need to go, we’re still unsure.”
The official cash rate was raised by 25bps at the central bank’s last monetary policy board meeting, currently sitting at 3.35%.
Some analysts, including Deutsche Bank economist Phil O’Donaghoe, have said the terminal rate could hit 4.1% by August.
Other observers, including AMP Capital chief economist Shane Oliver, said the cash rate was near its peak, adding the RBA may cut rates by the end of the year to stimulate a weakening economy.
