Why shouldn’t the head of the Reserve Bank be held accountable when he goofs?

For the eighth straight month the Reserve Bank of Australia raised the cash rate. This week it rose from 2.85 percent to 3.1 percent. It’s a change likely to add A$74 a month to the mortgage of someone with a $500,000 loan and double that for a $1 million loan.

According to news.com.au:


Borrowers faced a 38 per cent increase in home loan repayments from April to November, adding more than $809 to repayments on a $500,000 loan over 30 years or $1618 on a $1 million loan.

By now it’s not news that many people are under financial stress. Indeed across the world there are economic concerns with high inflation, supply chain issues, and energy prices. What is notable, however, is what the Governor of the Reserve Bank, Philip Lowe, told the Australian Senate a week before the latest rate rise.

For context, throughout 2021, with the cash rate at a record low of 0.1 percent largely thanks to the pandemic, Lowe had issued advice that they did not expect rates to rise until 2024. Lowe was saying that as recently as November 2021.

Based on the guidance almost 300,000 Australians took out loans and now they face considerable mortgage stress.

Appearing before Senate Estimates on November 28 this year, Lowe was pressed by Greens Senator Nick McKim about apologising for the advice. Lowe indeed offered an apology:


"I'm sorry that people listened to what we've said and acted on that, and now find themselves in a position they don't want to be in," Dr Lowe said. "But at the time, we thought it was the right thing to do. And I think looking back would have chosen different language.

"People did not hear the caveats in what we said. We didn't get across the caveats clearly enough, and the community heard 2024. They didn't hear the conditionality. That's a failure on our part, we didn't communicate the caveats clearly enough, and we've certainly learned from that."

Well, I suppose it’s nice that he apologised, but that is cold comfort for the hundreds of thousands of Australians struggling to make ends meet.

On the one hand, it’s good that Lowe has had to front up to the Senate and be pressed on this. On the other hand, this is typical of the technocratic state that someone in his position can simply offer up a “whoops sorry!” and face no consequences.

Because there should be consequences. Real people are facing real stress and financial ruin. And the best they are offered is “well there were caveats!”

This is simply unacceptable. Especially when the cost of living crisis caused by inflation was entirely foreseeable.

While it can be tiring to relitigate pandemic measures over and over again, it’s important to be clear that anyone with a basic grasp of economics could tell you that flushing the economy with cash at the same time there was a severe constriction of supply would have massive consequences on prices.

But that’s what the pandemic response was. Lockdowns and border closures decreased trade and supply while people received increased support payments and many worked from home saving money.

Lowe has been Governor of the Reserve Bank since 2016. He’s an experienced banker and executive of financial institutions. He can claim there were caveats all he wants but he has a responsibility to do better than that.

Lowe should resign. If he doesn’t, Prime Minister Anthony Albanese should fire him. We are already facing a crisis of institutional trust post-pandemic. That’s only going to get worse if the people in charge of the major financial decisions for our country aren’t held accountable.


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