No more rate ‘promises’ says RBA Governor, Lowe

Mike Taylor

Managing Editor/Publisher, Financial Newswire

16 September 2022

The Reserve Bank has flagged further interest rates to bring inflation back under control, but has emphasised that it is not on a pre-set path.

What is more, the Reserve Bank Governor, Philip Lowe says the RBA will not in future be placing itself in a situation where its statements on the economy are seen as a “promise”.

Addressing the House of Representatives Standing Committee on Economics today, Reserve Bank Governor, Philip Lowe defended the RBA’s track-record on interest rates and denied media suggestions that the bank’s earlier statements had been a mis-step.

“Since May, the cash rate has been increased by a cumulative 2¼ percentage points and now stands at 2.35 per cent,” he said.

“Like the rise in inflation, this increase has come sooner, and has been larger and faster, than was earlier expected. Previously the RBA had forecast that the damaging effects of the pandemic on our economy would be long lasting and that inflation would remain low. On that basis, we had expected that interest rates would remain low for some years.”

“I am frequently reminded that many people interpreted our previous communication as a promise, or a commitment, that interest rates wouldn’t rise until 2024. This was despite our statements on interest rates always being conditional on the state of the economy. This conditionality often got lost in the messaging. We are currently working through the implications of this for our future approach to forward guidance and communication more generally.”