Lowe’s last stand: RBA governor to face MPs one more time

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Lowe’s last stand: RBA governor to face MPs one more time

By Shane Wright

Reserve Bank governor Philip Lowe will face his final public grilling by federal MPs on Friday, with concerns about the fallout on the nation’s workers and home buyers from the institution’s rapid increase in official interest rates expected to dominate.

As one of the world’s top ratings agencies said Lowe was likely to deliver a soft landing, politicians from all sides of politics expect the governor – who will end his seven-year tenure in mid-September – to face tough questions over the threat to the economy from the RBA’s aggressive tightening of monetary policy.

Reserve Bank governor Philip Lowe will face the House economics committee for the last time on Friday.

Reserve Bank governor Philip Lowe will face the House economics committee for the last time on Friday.Credit: Alex Ellinghausen

The RBA governor fronts the House of Representatives’ committee twice a year to be quizzed by MPs on everything from interest rate settings to the bank’s role printing the nation’s cash supply.

In his February appearance, when the cash rate had just been increased to 3.35 per cent, Lowe conceded some parts of the community were already hurting from the tightening of monetary policy.

He said if inflation pressures eased, wage growth did not accelerate and supply chain problems across the global economy were resolved there was a chance interest rates could come down in 2024.


Financial markets are expecting the bank to cut the official cash rate, now at 4.1 per cent, at least once next year while some market economists are tipping up to three cuts.

In its most recent monetary policy outlook report, released last week, the bank downgraded its forecasts for economic growth through 2023 to just 0.9 per cent.

Wage growth is expected to eclipse inflation by the end of this year or early 2024, the first time that will have occurred since early 2021. Unemployment, which is at 3.5 per cent, is forecast to edge up to about 4.5 per cent by the middle of 2025.


A key issue expected to be discussed on Friday with Lowe is the lagged impact of the RBA’s rate rises. Increases in interest rates take between 12 and 24 months to fully work through the economy.

AMP chief economist Shane Oliver, who puts the chance of a recession at 50-50, said the long time it takes for a change in rate settings to affect the economy meant the RBA may have tightened rates by too much.

RBA deputy governor Michele Bullock will succeed Lowe in mid-September.

RBA deputy governor Michele Bullock will succeed Lowe in mid-September.Credit: AAP

“Rapid monetary tightening points to a high risk of recession and, given lags in the way it impacts the economy, just because it hasn’t happened yet does not mean it won’t,” he said.

Lowe is expected to face questions about the housing market – prices for both dwellings and rents which are climbing at their fastest rate in 14 years – amid concerns the Reserve Bank’s interest rate policy is putting cost pressures on the entire property sector.

In recent months, the bank has noted it expects unemployment to rise as the economy slows, taking some pressure off inflation. That has caused concern in the union movement and parts of the government that low-paid workers will bear the brunt of the RBA’s actions.


Unemployment overseas, in the United States and elsewhere, has become steady and inflation has returned towards central bank targets.

Global ratings agency S&P Global Ratings said on Wednesday it believes the strength of the jobs market in the face of the Reserve Bank’s increase in interest rates highlighted the resilience of the economy.

The organisation’s Asia-Pacific chief economist, Louis Kuijs, said it appeared the Reserve Bank would deliver a soft economic landing – in part due to ongoing strength in the services sector which employed almost four-fifths of all Australians.

He said the RBA’s decision to hold interest rates steady at its past two meetings showed it was aware of the risk of over-tightening monetary policy and driving the country into a recession.


“While our baseline forecast for Australia is somewhat less optimistic than consensus on growth and inflation, we expect continued expansion in 2023 and 2024,” he said.

“It is, in principle, possible for the economy to see a soft landing, with excess demand reduced not via a recession but through a period with actual growth lagging potential growth.”

Kuijs said the most significant risk to the economy was if the RBA was forced to lift interest rates higher to deal with stubborn inflation.

He said if that was to occur, the economy would slow more than expected which would then drive up unemployment.

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