Interest rate hikes put pressure on RBA boss Philip Lowe to resign

Philip Lowe’s tenure as governor of the Reserve Bank of Australia looks increasingly strained after he hiked interest rates up for the ninth time in less than a year. 

Treasurer Jim Chalmers stopped short of endorsing Mr Lowe in the job during an interview at the weekend – while four Labor MPs have taken the unusual step of publicly questioning if his contract should be renewed when it expires in September.

The heat will be turned up even more this week as the banker who rakes in $1million a year, fronts two parliamentary committees to shed light on his bungled forecasts.

In a grilling in November, he was forced to apologise to Australians who took out mortgages based on the central bank’s advice that rates would stay at near-record lows until 2024.

Instead borrowers have been slugged with soaring costs they hadn’t planned for.

Annual repayments are now typically $12,000 higher than they were in May 2022 and the Commonwealth Bank is expecting two more rate rises by Easter that will make the cost of living crisis even worse.

Australian home borrowers were smashed with a ninth straight interest rate rise in February with the Reserve Bank increasing the cash rate to a new 10-year high of 3.35 per cent

Mr Lowe’s seven-year appointment as governor of the RBA finishes on September 17 but his two predecessors, Glenn Stevens and Ian Macfarlane, both had their terms extended for another three years. 

Mr Chalmers was asked three times on Insiders on Sunday if Mr Lowe was doing a good job but ducked the question, giving a guarded response.

‘He’s got a hard job to do. He’s got to balance getting on top of this inflation challenge without crunching the economy… I’m not going to second guess the Reserve Bank governor,’ he said.

‘I genuinely respect his independence, as I’ve said probably hundreds of times, in opposition and now in government. I think that’s an important feature of the system.’

He said a decision would by made by mid-year whether to extend Mr Lowe’s term following the results of a sweeping review examining the RBA’s structure and accountability being handed to the Treasurer by March 31.

Four Labor MPs – Rob Mitchell, Jerome Laxale, Graham Perrett and Julian Hill – haven’t waited for the report and have already suggested he should be shown the door when the term is up.

‘Fair or not, there has been credible and highly unusual sustained criticism of [bank] judgments in recent times,’ Mr Hill said.

As well as the recent rate rises hitting thousands of Australian families, Mr Lowe has also been criticised for holding rates too high from 2017 to 2019, that some research suggested could have cost a quarter of a million jobs. 

He faced a wave of calls to resign last year after thousands of Australians locked into a home loan based on the RBA’s advice the cash rate would remain at 0.2 per cent until 2024.

As of February 2023, with the latest 25 basis point rise the cash rate is at 3.35 per cent and further hikes are forecast.

Mr Lowe apologised in November to people who locked into home loans based on the RBA’s claim rates wouldn’t rise and ‘are now in a position they don’t want to be in’ (stock image) 

In delivering the Anika Foundation address in September he said the RBA had made a ‘very large forecast miss’.

‘I can assure you I have no plans to resign,’ he said. ‘The economy is so much better than what people thought was going to be the case.

‘Interest rates are higher, and I know people don’t like that, but you should be welcoming a stronger economy.’

But in November, while fronting a Senate estimates hearing, he finally acknowledged that families were doing it tough because the RBA had got it wrong.

‘I’m sorry that people listened to what we said and then acted on that and now find themselves in a position they don’t want to be in,’ he said.

‘Looking back, we would have chosen different language. People did not hear the caveats. I thought it was clear … but the community didn’t think it was clear. 

‘Well, they thought it was clear we weren’t raising rates until 2024. That’s a failure on our part.’

Lowe will face another Senate estimates hearing on Wednesday this week followed by a House of Representatives committee on Friday.

Borrowers with a $700,000 mortgage are paying more than $1,000 more a month on average than a year ago (file image)

Treasurer Jim Chalmers (pictured) said Dr Lowe has a ‘tough job’ but stopped short of saying he would like to see him remain in the role

NAB economist Taylor Nugent said there could be ‘fireworks’ given recent comments by government the MPs questioning Dr Lowe’s tenure as governor.

‘We will be looking for comments around the RBA’s balancing of the risks of sub-par growth or recession versus getting inflation back to target and what the bar is to pausing the hike cycle – how much of a slowing in activity does the RBA need to see,’ he said.

Commonwealth Bank economist Gareth Aird said the decision to raise the cash rate this month came with a ‘surprisingly hawkish’ signal of more rate hikes to come.

‘It would be a big shock now if the RBA did not tighten policy further. Despite that, we maintain that there is a strong case to pause,’ he said.

‘Monetary policy works with a lag and the RBA is flying blind given they have put through an incredible amount of tightening that is yet to fully impact home borrower cashflow and by extension spending decisions.’