RBA governor Philip Lowe says ‘the worst is over’ in final parliament grilling
Outgoing Reserve Bank of Australia governor Philip Lowe has confirmed a “modest” rise in joblessness will be part of bringing inflation down.
Lowe, who steps down from his role in September, faced a parliament grilling for the final time today.
His deputy, Michele Bullock, who will assume the governorship, said earlier this year the unemployment rate would need to rise to 4.5 per cent before inflation returned to its target rate.
Today, Lowe implicitly backed her stance.
“It’s unpopular,” he said.
“But we will do what’s necessary, and we hope the community understand that.”
Speaking to parliament, he said the bank’s attempts to slow the growth of inflation had been helped by the resolution of global supply issues, as well as a reduction in oil prices.
But for the next phase, Lowe said, a “modest rise in unemployment” was needed.
The RBA anticipates inflation to return to the target rate of two to three per cent in 2025.
Lowe claimed an earlier target date would have led to increasing joblessness, which he said was not in the national interest.
And interest rates would have to rise an estimated full percentage point again to get back to target by 2024.
‘The worst is over’
Lowe acknowledged it had been “a very difficult year” for many people, but said things would begin to improve.
“I know it’s been difficult, but the worst is over,” he said.
“We’re getting to a place now to return to inflation back to target and a stronger labour market than we had before the pandemic.”
But he admitted that when the RBA elected to begin their string of interest rate rises last May, he did not expect to find himself in this position fifteen months later.
“Inflation here and elsewhere around the world turned out to be more persistent than we are anyone expected,” he said.
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Lowe says letters ‘thank’ him for high interest rates
Asked about how the cycle of rate rises have been received in the community, Lowe said he had received letters thanking him for increasing the cash rate.
“Although the impact of interest rates is uneven across the community, there are people, some of whom write to me, welcoming higher interest rates,” he told the parliamentary committee.
“For many years, I got letters from people bemoaning the low level of interest rates.
“They’re relying on interest income, and the interest rate was zero, so they weren’t getting an income. And now they’re getting more income.”
He said people who owned their house outright were also seeing property values rise, increasing their wealth.
“There are people who are benefiting from the higher interest rates, and other people are in a lot of pain because of the higher interest rates,” he said.
And he said people who borrowed their mortgage before the current series of rate rises had “benefited” from two to three years of exceptionally low interest rates prior to the hike.
‘Shop around’
In the week the Commonwealth Bank posted a $10.2 billion profit, Lowe said people concerned about banking profits should take action.
“If you don’t like the fact that banks are making so much money, I encourage you to shop around and make them work harder for your money,” he said.
“We want the banks to compete hard for our money, and we have a role in making them compete.”
He claimed the banks’ profits weren’t out of line with what was seen overseas.
