It’s no secret that economists have been caught off guard by the Reserve Bank’s willingness to move rates higher month after month, but suggestions that the government should step in and remove governor Lowe are, quite frankly, dangerous.
Speaking to InvestorDaily, the now infamous Shane Oliver expressed concern that the RBA is going too far and could end up knocking the economy into recession.
“Each additional rate hike just adds to the pressures out there,” Dr Oliver said.
Dispelling counter arguments, which suggest that Australians have built up substantial savings buffers, Dr Oliver cautioned that household debt is a “lot higher” with those in the 25–40 age bracket particularly susceptible to changing rate conditions.
“I’m worried that the RBA is not giving enough time between rate hikes to see what the impact will be. Because we know it impacts with a lag. It’s about a three month lag,” he warned.
Dr Oliver found himself at the centre of some rather interesting media coverage over the past week, with the AFR choosing to refer to his rate predictions as “lousy”.
Speaking to InvestorDaily, the chief economist explained that predicting the bank’s willingness to move rates higher hasn’t been a particularly easy task.
“I do worry that they’re going too far and do need to slow it down,” Dr Oliver said.
“We have ended up a lot higher than I expected … And it’s virtually the case for all economists. You go back to the start of last year and I know the CBA and ourselves, and a very small handful, were the only ones to expect any rate hikes in 2022. So you can argue that we were closer to it than the rest,” he said.
The rest, however, got a little too hawkish. And, at the time, Dr Oliver thought many of his peers were going “a little too far”.
“We’ve all been surprised at how high rates have gone,” he said.
Is it time for Lowe to go?
Surprise wasn’t lacking following the RBA’s first rate decision for 2023.
Namely, CBA’s Gareth Aird and Dr Oliver, without hesitation, revised their rate predictions after Dr Lowe scrapped the words “not on a pre-set path” from his statement — words that have appeared in almost all of the governor’s previous post-decision communication.
On top of his perceivably brash move, Dr Lowe also indicated on 7 February that “the board expects that further increases in interest rates will be needed over the months ahead”.
In response, Dr Oliver said: “We added another hike next month. CBA have added two. But I have to concede based on what they’re saying there, they could do a lot more.”
So, are the Greens onto something?
“The Treasurer needs to do two things,” the Greens Treasury spokesperson Nick McKim said earlier this week.
“Firstly, he needs to ask Philip Lowe for his resignation.
“Secondly, he needs to use the powers he has to reverse today’s decision by the RBA.”
But, according to Dr Oliver, sacking Dr Lowe would be a huge mistake.
“That would damage the credibility of the Reserve Bank,” he said.
“One of your primary economic agencies being overruled by the government, that would make Australia look like a tinpot republic.”
Fortunately, Dr Oliver said, “I don’t think they [the government] would do that”.
He did, however, admit that Treasurer Jim Chalmers’ now regular remarks about the RBA’s independence are worrying.
“On the one hand they are independent, on the other hand, he is distancing themselves from them so he can blame them. It’s a little bit of a worry,” Dr Oliver said.
The Treasurer’s choice of words also suggests that the government may have its own questions regarding the RBA’s course of action.
“I think there would be some in the ALP that would agree with the Greens, not necessarily about reversing the rate hike but about getting rid of Lowe.
“But I think the worst thing you can do is to get rid of a key leader … financial markets would crash the Aussie dollar, they’d push up bond yields, borrowing costs would go up. It wouldn’t be a pretty picture,” Dr Oliver said.
Noting that although he does believe the RBA is going “a little too far”, Dr Oliver hinted that he’d pick Dr Lowe over the government any day.
Dr Lowe’s term is, however, due to end in September this year. Addressing this earlier this week, Mr Chalmers said “all options were on the table”, with a decision on Dr Lowe’s future subject to a government review.
“I mean it when I say that I will consult meaningfully with my colleagues closer to the middle of the year,” the Treasurer said.
“We’ve got a Reserve Bank Review that I’ll receive next month and respond to after that. That will obviously be a factor in my thinking when it comes to how we make sure that the Reserve Bank has the right structures and objectives and how it weighs up those objectives.”
