Four Labor MPs have questioned the future of Reserve Bank governor Philip Lowe after nine consecutive rate rises from the central bank, suggesting his seven-year term should not be extended.
Reserve Bank governors are appointed to seven-year terms and Lowe’s expires on September 17. The previous two governors, Glenn Stevens and Ian Macfarlane, both had their terms extended by three years to complete a decade in one of the nation’s most important economic jobs.
But with a sweeping review of the central bank due to be finalised and handed to Treasurer Jim Chalmers in late March, there is a growing expectation that Lowe will not stay on beyond September.
Tuesday’s decision to raise rates again – and signal at least two more rises – has heightened concerns that Australia could be tipped into recession by the RBA’s aggressive action to curb inflation.
The four Labor MPs have now taken the unusual step of questioning the central bank boss.
Victorian Labor MP Julian Hill, the chairman of the public accounts and audit committee, said confidence in both the independence and the judgment of the Reserve Bank governor and board was absolutely critical for Australia’s financial system and economy.
“Fair or not, there has been credible and highly unusual sustained criticism of [bank] judgments in recent times,” he said.
“We can’t hide from reality and these factors I’m sure would be taken into account when considering a response to the review of the Reserve Bank and future leadership appointments.”
Queensland Labor MP Graham Perrett said extending Lowe’s term was a matter for the treasurer and his team “but certainly, activist governors carry extra risks”.
“And that might be problematic for the current governor in these super challenging times. He has baggage associated with his comments outside the RBA board meeting notes that he might find hard to put down.”
Lowe last November apologised before the Senate economics committee for suggesting, as late as November 2021, that the central bank’s cash rate would remain at 0.1 per cent until 2024. The RBA instead started lifting rates in May last year.
Since then, the cash rate – which dictates the interest rate banks charge people to take out a mortgage – has risen to 3.35 per cent and on Tuesday the bank signalled further rises were in prospect to tackle inflation.
NSW Labor MP Jerome Laxale criticised the RBA for using “outdated and outmoded data” that did not take into account the impact that rate rises had on people who were renting, as landlords were using rate rises to justify rent increases.
“Nearly 50 per cent of NSW [residents] rent, 40 per cent in my electorate. And they’re making these decisions without understanding the impact on [renters],” he said.
“I would hope that since September to now, the RBA have started that process of measuring the impact of rate rises on the most populous housing tenure in NSW.”
Victorian MP Rob Mitchell said he hoped the central bank was “very cautious when they do things because it is absolutely, for an area like mine that has high mortgage stress, it is very concerning”.
“Volunteer organisations are seeing more and more people in mortgage stress and it’s a fine balancing act to try and help people without putting excess pressure on inflation.”
Assistant Treasurer Stephen Jones told Sky News on Wednesday that “we’re hoping that this, if not the last, it’s nearly the last of the interest rate increases”.
Chalmers would not be drawn on Lowe’s future during an interview on ABC’s on Wednesday morning, ducking questions on whether the governor’s term would be extended for three years as it had been for his two most recent predecessors.
“When it comes to the governor’s reappointment, his term doesn’t conclude until September. In the ordinary course of events, that appointment would be considered closer to the middle of the year. When the time comes, I’ll do the usual consultation with my colleagues and we’ll come to a view,” he said.
Former Labor trade minister Craig Emerson tweeted on Tuesday night after the bank’s rates announcement, “the Reserve Bank is bound by law to adopt interest rate policy settings to achieve BOTH low inflation AND full employment – not just low inflation. It is risking needlessly plunging Australia into recession.”
On a mortgage of $750,000, the increase will add $116 to monthly repayments. Since the Reserve Bank started lifting rates, the monthly repayments on a $750,000 mortgage will have climbed by almost $1400.
The governor, who is paid about $1 million a year, has also been criticised for warning against high wage rises to workers.
Lowe and the RBA also came under fire before COVID because of complaints it had held interest rates too high between 2017 and 2019.
Independent research has suggested up to 250,000 jobs were not created during this period because the bank held the cash rate at 1.5 per cent. Lowe announced just days after May 2019 election the bank would start loosening monetary policy to drive down unemployment and lift wages growth, with the official cash rate halved to 0.75 per cent by October.
The Act governing the Reserve Bank makes it extremely difficult for the treasurer of the day to sack the RBA governor.
The governor has to resign if they become “permanently incapable” of performing duties, become bankrupt or engage in paid employment outside of the bank. A governor, and their deputy, also hold their office “subject to good behaviour”.
Sacking a governor – as Greens treasury spokesman Nick McKim called for on Tuesday – would most likely spook financial markets and cause economic and financial issues for Australia.
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