Reserve Bank governor Philip Lowe will not be reappointed by Anthony Albanese’s government, despite on Wednesday saying he was hoping to keep the role.
Dr Lowe’s term as RBA governor is due to expire in September, with cabinet to meet this morning to decide on his replacement.
Two of the leading candidates for the position are Treasury secretary Steven Kennedy and Finance secretary Jenny Wilkinson.
Deputy governor Michele Bullock is also considered as a leading contender.
Treasurer Jim Chalmers has said a call on whether the term would be extended or a new governor appointed would be made soon and he has held talks with shadow treasurer Angus Taylor about the decision.
Dr Lowe has faced criticism following multiple interest rate hikes in the past year, after previous comments saying the cash rate would not increase until 2024.
Dr Philip Lowe will not be reappointed as Reserve Bank governor
Inflation in Australia has remained persistently high despite 12 successive hikes in interest rates, and sits at 5.6 per cent, well above the RBA target range of below three per cent.
Ahead of the announcement on Wednesday Dr Lowe spoke out with unusually frank advice, warning of the consequences of the government giving into wage rises which will only entrench inflation.
He warned of a price-wage spiral, in which price rises are used to justify wage increases, which only serves to make things more expensive.
‘If we saw Australia in the same situation as in the US, Canada, and UK, where wages are growing at six per cent, that would have implications for our setting of monetary policy,’ Dr Lowe told the Economic Society of Australia in Brisbane.
‘We will get inflation back to target, and we’re going a bit slower than others because we want to preserve the gains in the labour market.
‘If it turns out we can’t do that, we will have to take the decision to be tougher.’
This echoes comments Dr Lowe made in June that contradicted Dr Chalmers’ claim higher wages are not fuelling inflation.
Dr Chalmers said last month an 8.6 per cent increase in the minimum wage had not had any impact on interest rates, which have had to be increased 12 times in the space of a year to calm runaway inflation.
However, Dr Lowe said ‘compensating’ workers for higher inflation was getting ‘ourselves into trouble’.
‘Because if you accept that premise, and inflation’s seven per cent, wage rises match that, what do you think inflation will be next year?’ he said.
‘It will be high again and then you’ll have to have higher wage increases again.’
Read Related Also: FBI still working to censor Americans on social media
During his Wednesday lunch address, Dr Lowe also said the growing price of home loans would not reduce home values because of high levels of migration pushing up demand.
Over this and next financial year, about 715,000 people are expected to come into Australia on working, student or other longer-stay visas.
‘All these people coming in have to live somewhere,’ Dr Lowe said.
‘That is pushing up rents and housing prices.
‘We thought housing prices would continue to decline this year but they are not, in Sydney, they are rising quite strongly again, and that is partly due to the influx of immigration.’
Dr Lowe said the nation’s political and business leaders urgently need to invest in expanding Australia’s housing capacity to keep home prices in check so people have money to spend rather than be tethered to huge mortgages for decades.
‘If we’re going to have a lot more people in the country, which is good, we need the capital stock to support those people – otherwise the capital/labour ratio declines and that is bad for productivity,’ he said.
‘Population growth brings huge advantages to the country, but we need governments and businesses to keep investing to build a capital stock to support a stronger population.’
At the event, Dr Lowe was again forced to defend comments he had made during the Covid pandemic that rates were unlikely to rise until 2024 – predictions that were not met and may have contributed to some borrowers over-committing and taking on bigger debts than they could afford.
Dr Lowe said his comments were the right thing to do during the economic uncertainty of the pandemic.
‘What we are trying to do with our communications is to tell people what we are doing, why we are doing it, the facts we are taking into account,’ he said.
‘During the pandemic, we had a different approach because, at the time, we thought we were in truly dire circumstances. We were explicit about what we thought was the path to interest rates and it turned out we were wrong.’
Asked about whether he wanted to continue as RBA governor, Dr Lowe said he would be ‘honoured’ to keep the job.
However, if that did not happen, he pledged to do all he could to support his successor.
More to come
Philip Lowe, a father of three, lives in the wealthy suburb of Randwick in the city’s inner south-east, where the median house price is $2.9million
Dr Lowe, who is on a total remuneration package of $1,037,709 and a base salary of $890,252, is protected from the cost of living crisis
