If hindsight is said to come with 20/20 vision, there should be an equivalent for hearing.
Reserve Bank governor Philip Lowe on Monday copped another barrage of attacks after he tried to explain to Senate estimates why in 2021 the central bank was saying interest rates might not rise until 2024.
The rest, of course, is history and also the future since another RBA rate hike is likely on 6 December. Such a move would make it a record eighth consecutive rate increase in as many months.
Much like those earlier messages, however, some pundits seized on parts of Lowe’s message to suit a punchy commentary. Much easier than parsing the context or weighing the intent of what he said.
Lowe certainly makes for decent sport – a bureaucrat on $1m a year who lecturers us to not to chase wage increases that keep up with inflation. But it would be unwise to summarily discount him or the RBA.
Sure, there’s a long overdue review into the banks to improve its operations – and 114 submissions so far to say where – but it would be wiser to tether our complaints to reality. Along with perhaps the high court, we have few institutions that remain mostly above the political fray, and the RBA is among them if only just.
Lowe, of course, doesn’t always help himself, giving two parts of an apology that on their own invited some media disdain.
First, Lowe said he was “certainly sorry if people listened to what we’d said and then acted on that … So that’s regrettable. I’m sorry that that happened”.
Later in the same circuitous answer to Greens senator Nick McKim, Lowe doubled up: “I’m sorry that people listened to what we’d said and acted on that, and now find themselves in a position they don’t want to be in.”
He was taken to mean: We’re only the central bank, why’d you listen to us, and if you did and took out excessive debt so that you’ve been caught short when rates rose, well, sorry!
However, just as in 2021, Lowe couched his comments in context. After all, central bank governors, much like politicians, rarely give single answers.
The economy in 2020 and 2021 were “dire” and the RBA “wanted to do everything we could to help the country get through that”, he said.
“We also thought that given the dire outlook, it was unlikely that inflation would pick up quickly [so we wanted] to send a message that interest rates were going to stay low for a long period of time,” Lowe said.
Guilty as accused, then?
Not so fast. Looking back, Lowe “would have chosen different language … People did not hear the caveats in what we said”.
“My language was always caveated,” he says, which is true if you look at the statements. They carried conditions as they always do – including the current ones about whether the RBA might pause its rate hikes or return to “super-sized” ones.
It depends on what’s happening to prices, or more importantly, what households and businesses think will happen since such sentiment tends to be self-fulfilling.
Of course, few except monetary policy wonks, economists or bond traders read every statement the RBA says. And the bank should have done more to underscore the possibility that, if conditions changed, so would rates.
Lowe is an easy fall guy to blame for our own failures to hedge against shifting economic fortunes.
It’ll take a brave treasurer now to reappoint Lowe when his term ends next September.
But whoever gets the job, that person can expect more turbulent times, as Lowe himself warned just last week. Perhaps we’ll be listening more carefully from now on.
