The Reserve Bank governor has ruled out resigning despite mounting criticism of COVID-era predictions about future rate hikes.
Speaking at an event on Thursday, RBA Governor Philip Lowe addressed calls for his resignation from the Greens and Nationals senator Matt Canavan over assertions that rates would not start rising until 2024.
“I can assure you I have no plans to resign,” he said at the Anika Foundation in Sydney on Thursday.
Despite surging inflation, Dr Lowe said the economy was also showing signs of strength, including record low unemployment.
He said inflation was high and that was “partly because of the insurance policy we took out during the pandemic”.
“We said ‘Well, what’s the bigger policy error to make? Go too little, or do too much?’” he said.
“If we do too little, and unemployment rates hit 15 per cent and tens of thousands of people are dying every month, then the economy, our society, would have paid a very heavy cost.”
He said the alternative was overdoing it and “then we’d have to increase interest rates and get all this criticism calling for my resignation”.
Dr Lowe also said he never promised rates would not start rising until 2024.
“What we said was we thought the pandemic was going to have long-lasting disruptive effects on the economy that would keep inflation low and would keep unemployment high for years, and we wanted to do what we could to prevent that,” he said.
“And that meant we were likely to keep interest rates low for a long period of time out to 2024, so it was highly conditional.”
Greens senator Nick McKim has doubled down on the views after the speech, noting that Dr Lowe failed to mention the contribution of corporate profits to soaring inflation.
“Inflation started with global supply shocks, but it is being turbocharged by corporate profiteering,” he said.
In his speech, Dr Lowe used the opportunity to explain the board’s “very large forecast miss” on inflation, which triggered the aggressive policy tightening.
“Forecast misses of this scale should lead to soul-searching by forecasters, and they certainly have at the RBA,” he said.
Dr Lowe laid out the reasons for the unexpected lift in inflation, starting with Russia’s invasion of Ukraine limiting the production of energy.
He also said there was a surge in demand for goods at a time when COVID was interrupting production and therefore supply.
“The result was that many industries quickly found themselves on the sharply upward-sloping part of the supply curve, and prices increased,” Dr Lowe said.
He said the home building sector was a good example of this trend.
“Very strong demand in this sector – partly due to low interest rates and government grants totalling up to $35,000 for some first-home buyers – came up against COVID-related problems on the supply side,” Dr Lowe said.
“The result was a big jump in prices, which has had a material impact on the overall inflation rate in Australia.”
He also flagged more rate rises in coming months, but hinted at a slower pace of tightening following the fourth 50 basis point hike in a row on Tuesday.
© AAP 2022
