RBA governor apologises for misleading borrowers on interest rates

RBA governor Philip Lowe

Reserve Bank governor Philip Lowe has apologised to the thousands of Australians who believed him when he said interest rates wouldn’t rise until 2024 and took out home loans they are currently struggling to repay.

Speaking at a Senate estimates committee, the RBA boss explained that earlier messaging around interest rates staying put was based on economic forecasts which were believed to be accurate at the time. 

Those forecasts quickly became irrelevant with the breakout of war in Eastern Europe and the sudden surge in inflation across much of the global economy.

“I’m sorry that people listened to what we’d said and acted on that, and now find themselves in a position they don’t want to be in. At the time we thought it was the right thing to do,” Lowe said to the committee.

“The country was in a dire situation and the Reserve Bank wanted to do everything we could to help the country get through that.

“We also thought, given the dire outlook, it was unlikely that inflation would pick up quickly and we would send a message that interest rates were going to stay low for a long period of time.”

The RBA’s pivot in May kicked off the fastest monetary policy tightening spree since 1994. Today, the cash rate is a staggering 275 basis points higher than it was when the year began, and it’s widely expected to rise again next week.

During this cycle, the RBA has avoided making firm claims about where interest rates are heading and how quickly they’ll get there, choosing instead to remind the public that it’s not on a pre-set path.

According to Westpac chief economist Bill Eans, this leaves the door open to pause or even return to the 50 basis point increases which characterised the four months from June to September.

In his comments to the Senate, Lowe also said that inflation would continue to outstrip wages growth in the near future, and that the solution was not to lift wages but reduce demand.

He acknowledged that declining real wages will be tough to accept, “but the alternative is even more difficult.”

If the central bank succeeds in taming inflation, however, workers can expect wages to grow in the coming years and cost of living pressures to subside.

“So real wages, real incomes of people will be rising again, as we go into 2024. But if we seek to have no reduction in real wages this year, we’ll have to have higher interest rates later on,” Lowe said.

For more information on interest rates and lending trends, head over to our home loan statistics page.

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