Australia’s borrowers hoping for insights about how the Reserve Bank will change under a new governor would have been disappointed by the House of Representatives economics committee interrogation of RBA chiefs on Friday
Philip Lowe, who was overlooked by the Albanese government for an extension to his seven-year stint at RBA governor, dominated proceedings. His successor, Michele Bullock, perhaps out of deference, kept schtum on any differences of opinion, and was not pressed by the MPs of Labor, Coalition or independent persuasion.
To be fair, Bullock would likely have echoed Lowe’s views, whether on interest rates or how the bank will change after a once-in-a-generation review. She was, after all, in each of the 12 board meetings that opted to hoist the key interest rate since May 2022 and is as close to being a “lifer” as probably any other toiler in Martin Place.
Also worth interrogating further with Lowe was his views about alternatives to the “blunt instrument” of interest rates to curbing inflation. The review opened the door to other options.
Lowe still has one more rates meeting to command, on 5 September, and wasn’t quite ready to cede the floor. Aside from a plan to front the Anika Foundation in Sydney for “some final remarks” two days later, Friday was likely our final chance to explore the world according to Phil.
Lowe’s mantra barely shifted. It remains “too early to declare victory” and further interest rates increases are “possible” should wages spike or inflation, particularly for services, surprise on the upside.
Labor MPs on the committee sought and received a reaffirmation from Lowe that the May federal budget had been “broadly neutral” for inflation. One reason, though, was the role of “automatic stabilisers” – eg people coughing up more tax as incomes inflate – but that point passed without comment.
The Coalition and the independent MP Allegra Spender likewise received confirmation productivity gains must be pursued if workers were to pocket more dough without baking in higher prices.
Monetary policy, however, was the RBA’s strong suit. The “issue is not knowing what to do but finding the political consensus to do it”, Lowe said, turning the tables on his inquisitors.
To the disappointment of a few, Lowe was not grilled at length about profit-gouging by companies beyond the banks.
On the CBA’s record $10.2bn annual profit, Lowe said Australia’s biggest bank had a return on equity of 14%, within the 10-15% range internationally. CBA’s results, therefore, “were not out of line with what we see overseas or for other companies”.
(With his skills, Lowe might find his talents post-17 September most attractive to a commercial bank, as several of his predecessors have found. He would only admit to “looking forward to becoming a private citizen”, getting his golf handicap down to single digits, and not planning to become a “public commentator”.)
A surge in loan refinancing revealed the rewards for those willing to shop around, lopping about 60 basis points off mortgage rates, Lowe said. The central bank would like to see depositors do the same to secure better returns, Bullock chimed in with one of her few interjections.
No MPs pressed hard about the wisdom of a windfall tax on bank profits, as Italy announced this week. Lowe’s views on the unearned super profits by energy companies buoyed by Russia’s war on Ukraine might also have been worth probing.
His views on rent controls, though, will likely get traction in the next round of debates over the $10bn Housing Australia Future Fund, currently blocked by the Greens in the Senate with strident Coalition backing.
“The solution lies in increasing supply,” Lowe said, noting rental vacancy rates were the lowest in decades, if not ever, as population grows about 60% faster than new housing stock.
What’s needed were zoning and planning deregulation by governments at different levels, he said. Short-term fixes, such as rent controls or giving more financial assistance to renters, “in my judgement make the problem worse”.
That comment might end up being the most quoted from Friday’s gathering. Without a Greens MP on the 10-person committee, it was another of Lowe’s positions that might have deserved more scrutiny in his final appearance before parliament.
