‘Better to Do Too Much Than Not Enough’: RBA Governor Rationalises Interest Rate Hikes

RBA Governor Philip Lowe at the Standing Committee on Economics at Parliament House on February 05, 2021, in Canberra, Australia. (Sam Mooy/Getty Images)

The governor of the Reserve Bank of Australia (RBA) has apologised to Australians for higher interest rates as a result of the inflationary effects of COVID-19 stimulus but noted the package was a risk that was worth taking.

Speaking at a Senate Estimates hearing in Canberra on Nov. 28, RBA Governor Philip Lowe said he was sorry the financial institution had not been clearer about the potential risks.

“I’m certainly sorry if people listened to what we said and then acted on what we’d said and now regret what they had done,” Lowe said.

“Looking back, we would have chosen a different language. People didn’t hear the caveats. That’s a failure on our part: we didn’t communicate the caveats clearly enough.

“The community heard 2024, they didn’t hear the conditionality, and that’s partly our fault.”

Lowe noted that during the first two years of the pandemic, the government and the RBA had wanted to do everything they could for the country.

“We were all scared for the country, and we wanted to do what we could to help,” he said. “I knew at the Reserve Bank that there was a risk we could do too much, and we would have to take it back. And that would have been embarrassing.”

However, he noted that he believed, at the time, it was a risk worth taking given the economic forecast was predicting unemployment to rise to 15 percent.

“I'd much rather do too much than too little,” he said. “ The country would have paid a very heavy price, kids not having jobs for years, unemployment being high, businesses falling over left, right, and centre.

“I thought it was better to do too much and take it back.”

Stimulus Created Some Bright Spots

Lowe noted that while the country was suffering from high inflation, the stimulus also enabled Australia to create a positive labour market and drive unemployment to a 50-year low.

A point, he noted, should not be forgotten.

“Because most people in Australia who want a job can get one, maybe not the one they want but most people in Australia who want a job can get one, and we haven’t been able to say that for 50 years,” he said.

According to the Australian Bureau of Statistics, the unemployment rate in October in Australia was 3.4 percent with 13.6 million Australians now employed.

An employee of RJ gym cleans and prepares a day before reopening due to the easing of COVID-19 restrictions in Sydney, Australia, on Oct. 10, 2021. (Steven Saphore/AFP via Getty Images)

RBA Governor Faces Government Criticism

The apology from Lowe comes after the governor received strong criticism from federal government ministers after remarks he made in a speech declared the period of rising interest rates “relatively painless.”

Speaking in separate interviews on Nov. 23, the Minister for the Environment and Water, Tanya Plibersek, and the Minister for the National Disability Insurance Scheme (NDIS), Bill Shorten, criticised the Reserve Bank governor for the remarks.

Plibersek said in an interview on ABC Breakfast that she believed the period of rapid interest rate rises instituted by the RBA could not be called painless.

“It hasn’t been painless. It has been a very difficult time for families. The cost of everything is going up. Their wages haven’t kept pace,” the minister said.

“You look at people who are working in industries like aged care, early childhood education and care, disabled services and working in shops, retail, and fast food. These are the people who have struggled in recent years.”

Meanwhile, NDIS minister Shorten, speaking to ABC Radio National, called the governor’s comments “rubbish” and accused the RBA of trying to get blood out of a stone.

“It all depends on what the wage rise is,” Shorten said. “These wage changes aren’t going to lead to double-digit wage inflation. Like it’s just rubbish.”

“The reality is though that when you’re getting your electricity bill every quarter; when you get your gas bill every two months; when you’ve got the increased costs of the kids going to school, when you’ve got the mortgage payments where the RBA is increasing the interest rates, you can’t get blood out of a stone.”