Fielding questions at the Senate Economics Legislation Committee on Monday (28 November), Mr Lowe said record-low interest rates were part of an “insurance package” during the COVID-19 pandemic that ultimately was not required. (17 mins)
“We had to take back the insurance and get interest rates back up to something close to normal. In addition to that, we have had to increase interest rates because demand in the economy is very strong,” Mr Lowe said.
The central bank governor was asked whether he believed Australians deserved an apology for the Reserve Bank’s (RBA) February 2021 forward guidance that rates would remain on hold until 2024.
“Well, I certainly am sorry if people listened to what we said and acted on what we said, and now regret what they have done,” Mr Lowe said. “That’s regrettable and I’m sorry that happened,” he said.
“But if I can just take you back, the country was in a dire situation. We wanted to do everything we could to help people get through that. We had a strong insurance mindset and considered what could go wrong. We are talking about 15 per cent unemployment.
ABS figures show the unemployment rate fell to 5.8 per cent in February 2021, the same month that the RBA said rates would remain on hold until 2024.
“Given the dire outlook, it seemed unlikely that inflation would pick up and wanted to send a message that interest rates would remain low for a longer period of time. At the time, I thought that was the right thing to do. Ex post, the economy recovered much more quickly than anyone expected and we had to raise interest rates more quickly and people who borrowed in those two years are now finding it more difficult.”
The RBA has increased the cash rate to 2.85 per cent from 10 basis points in just over six months.
On 15 November, the Reserve Bank announced that it would be reviewing its approach to forward guidance.