‘We got things wrong’: Lowe defends his legacy

Outgoing Reserve Bank governor Philip Lowe has defended his legacy in his final speech in the top job, insisting he is not to blame for Australia’s soaring home prices.

Dr Lowe’s final few years at the RBA have been characterised by rapidly rising interest rates, made harder for borrowers to swallow by his earlier forecasts that an upward shift would not commence until 2024.

The cash rate began rising in May last year and is now a staggering 4 percent higher following a record run of hikes, the swiftest since the 1980s, but Dr Lowe is unrepentant.

“The issue that has defined my term more than any other is the forward guidance about interest rates that was provided during the pandemic,” he said in an address on Thursday.

“That guidance was widely interpreted as a commitment, rather than a conditional statement, that interest rates would not increase until 2024.”

Red hot inflation offered the RBA no other choice than to begin a dramatic tightening cycle. He repeated his belief that his assurance of rates remaining on hold was never a firm one.

“There has been much criticism since [rates increased], especially by those who borrowed during the pandemic based on our guidance,” he said.

“I ask that people keep in mind the circumstances we faced in 2020. It was a very scary time. There were credible projections that the unemployment rate would rise to 15 percent and that there would be a deep and lasting economic contraction.
“And even well into 2021, large parts of country were still in stringent lockdowns.”

However, Dr Lowe conceded that “with the benefit of hindsight”, he now believes the RBA “did do too much” in terms of implementing emergency measures in the early stages of COVID.

“But hindsight is a wonderful thing,” he said. “We got some things right, but we got other things wrong.”

He rejects the view that keeping rates at a record low of 0.1 per cent for so long is responsible for home prices rising at one of the fastest paces in history during 2021.

“Rather, it is the outcome of the choices we have made as a society – choices about where we live, how we design our cities and zone and regulate urban land, how we invest in and design transport systems, and how we tax land and housing investment.”

One big thing Dr Lowe does not regret is increasing the cash rate in a bid to get a handle on inflation, acknowledging the move as “unpopular” with much of the public but declaring it “the right thing to do”.

He took a final parting shot at the media, which he claimed had inflamed tensions with “clickbait” news about rates, fuelling “vitriol [and] personal attacks”.

Dr Lowe has spent 43 years at the RBA and the past seven as governor. He officially steps away next week, replaced by current deputy governor Michele Bullock.

Economists forecast her first change to rates will be some time in 2024 – and will likely be a reduction, based on current fiscal indicators.