The Reserve Bank of Australia is facing mounting policy pressure after raising rates for five consecutive months – after vowing the cash rate would not rise until 2024 “at the earliest”.
In July, Treasurer Jim Chalmers announced “the first major review” of the RBA since the 1990s.
At the time, Dr Chalmers confirmed that the review would “examine the objectives, mandate, interaction between monetary, fiscal and macroprudential policy, its governance, culture, operations, etc.”, with a report final expected in March 2023.
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But according to Nine newspapers, not only is the review already in full swing, but it “focuses on Governor Philip Lowe, his executive and the institution’s board of trustees amid criticism over his handling of interest rate policy before and during the Covid pandemic”.
Citing sources familiar with the review, journalist Shane Wright claimed that “concerns” had been “openly raised about the composition of the board and its overall governance”.
The RBA board and Dr Lowe are criticized for keeping rates too high before the pandemic, before cutting them due to the Covid recession, then publicly and repeatedly declaring they would stay low until 2024.
But in May 2022, the RBA announced the first official interest rate hike since 2010, revealing that it would raise the cash rate by 25 basis points to 0.35% from 0.1%.
It has raised rates every month since then, most recently on Tuesday this week, when homeowners took another 50 basis point hike, taking the official interest rate to 2.35%, the highest level since December 2014.
According to Rate City, the average homeowner will see their monthly repayments increase by $144 in September if their lender fully passes on that month’s 0.50 percentage point hike.
If you combine the 2.25 percentage points of hikes since May, that’s $614 more per month for the average borrower who had a $500,000 25-year loan before the hikes started.
And it’s a figure that will only continue to rise, with some economists expecting the official exchange rate to hit 3.6% by the end of 2023.
Whipped “Broken Promise”
This week’s decision sparked an outpouring of anger, including growing calls for Dr Lowe to step down.
Critics of Dr Lowe and the Council pointed to the RBA’s message – repeated over and over from late 2020 and throughout 2021 – that rates would not rise for years.
In fact, for most of last year, the RBA issued the same repeated assurance: “The Board will not raise the cash rate until real inflation is sustainably within the target range of 2 at 3%. For that to happen, wage growth will have to be significantly higher than it is now. This will require significant employment gains and a return to a tight labor market. The Council does not expect these conditions to be met before 2024 at the earliest.
Countless Australians took out mortgages during this period, at a time when house prices, and therefore mortgages, had never been so expensive, with many taking up these four crucial words – “2024 at the earliest — into consideration in making such an important financial decision. .
Many mortgage holders – especially young Australians who have been buying in the country’s notoriously hot property market over the past 12 months or so – have felt betrayed by the RBA over what they perceive to be a promise not outfit.
Among the most vocal critics is Treasury Greens spokesman Nick McKim, who wasted no time in speaking out against Dr Lowe’s actions.
“Reserve Bank Governor Philip Lowe has enticed hundreds of thousands of Australians to take out mortgages by saying interest rates will not rise until 2024 unless there is a sustained wage growth,” he tweeted this week.
“Having failed to deliver on that pledge, he should now resign.”
Nationals Senator Matt Canavan echoed that call, telling Today’s host Ally Langdon that there “has got to be accountability.”
“The Reserve Bank has failed. There’s no doubt about it,” Canavan said this week.
“I think this RBA Governor should have left when he promised not to raise rates until 2024 and now he has broken that promise five times.”