Reserve Bank Governor Philip Lowe has given Australians unclear guidance that has led hundreds of thousands to take out big mortgages as they expect interest rates to stay low until 2024. I apologize to the Australian people for this.
- RBA boss Philip Lowe said the bank had not properly communicated with the public.
- He told a Senate hearing they did the right thing at the time, but with the benefit of hindsight, central banks may have given the economy too much stimulus during the pandemic.
- He doesn’t want wages to rise too much because he keeps inflation and interest rates high.
Towards the end of 2020, and for most of last year, it is likely that interest rates will not rise until 2024, Dr. Lowe said.
At that time, Nearly 300,000 Australians borrowed more than 6 times their incomesome with a 10% deposit, based on that guidance.
But in November, the Reserve Bank of Australia raised interest rates for the seventh straight month and warned it expected inflation to peak at 8% by the end of the year, much higher than expected.
The cash rate is currently at 2.85%, and many people are paying variable interest rates as high as 6-7% of mortgages, struggling to pay it off as the cost of living rises.
Dr Lowe answered questions at a Senate Economics Committee hearing in Canberra on Monday and said interest rates would continue to rise until inflation subsided.
He said he would have been more clear in his message, with the benefit of hindsight. Interest rates will not rise until 2024but there was always a caveat in his messages.
Nevertheless, he said central banks should have done more to clarify these warnings to the public.
“I regret that people listened to us and acted on it, and now we find ourselves in a position we don’t want to be,” said Dr. Lowe. Told.
“But at the time we thought it was the right thing to do, and in retrospect I think we would have chosen a different language.
“People weren’t listening to the warnings on what we said. We didn’t articulate the warnings clearly enough. The community was listening to 2024. They weren’t hearing the terms.
“That was our mistake. We didn’t communicate our caveats clearly enough. We certainly learned from that.”
RBA changes communication strategy
Dr. Lowe said the Reserve Bank will change how it communicates with the public in the future.
But he said during the 2020 and 2021 pandemic lockdowns, “the country is in dire straits and the Reserve Bank wants to do everything it can to help the country get through it.”
He said the central bank did not know at the time that the Omicron wave of COVID-19 was not as severe as the delta wave and that inflation would rise sharply from the end of last year into this year.
“We also had a strong mindset about insurance: ‘What’s going wrong here? And what’s going wrong is really, really bad.’
“As you know, the unemployment rate is 15%, young people cannot find jobs, people cannot go to school or college.”
He said their policy response to inject massive stimulus into the economy was “the right thing to do” at the time, but in hindsight “the predictions weren’t right.”
“It was a miserable time, so I decided to do the best I could,” he said.
Asked if they had lost public trust, Dr. Low said he didn’t think so.
He said financial markets expected inflation to stay within the 2-3% target range following the Reserve Bank’s series of rate hikes.
“If wages rise too much, it will lead to inflation and interest rates will rise.”
Dr Lowe said the central bank hopes workers’ wages will not rise significantly while real wages are set back.
That could make it harder to bring inflation back into the target band and could prolong interest rate hikes, he said.
“If wage growth is 7-8%, inflation will be 6-7%. We were in this world in the 1970s and it didn’t work,” said Dr. rice field.
He said he thought this was unlikely to happen, but that it was a possibility that had crossed the minds of central banks around the world.
“The best outcome for the country is wages to rise, but no further,” he said.