Philip Lowe, the governor of the Reserve Bank of Australia, has been criticised in the media for
Question:
Philip Lowe, the governor of the Reserve Bank of Australia, has been criticised in the media for providing guidance in 2020 and 2021 that the official cash rate would remain at historic lows until at least 2024 because there was no prospect of wages growth hitting more than 3% before that time. Lowe has subsequently indicated that the RBA board had decided to do "everything it was possible to do to help the economy" during the depths of the Global Pandemic.
Unfortunately, Russia invaded Ukraine in early 2022 setting off a global energy, commodity and food price crisis. By December 2022, inflation had increased to 7.8% from a low of -0.3% in June 2020. The RBA was forced to lift the Cash Rate from a historic low of 0.10% in April 2022 to 3.10% in December 2022. A significant number of Australians who took out fixed interest rate home loans during historic low interest rates during the Pandemic now face the prospect of crippling loan payments when their fixed interest rate home loans automatically revert to variable rates between now and 2026.
What do you think about the RBA Board's decision to provide forward guidance on 'historic low interest rates until 2024' to the public? Was it reasonable at the time? Was it prudent? Was it fair for them to reverse course in 2022 by lifting rates aggressively? Should Philip Lowe keep his job? What do you think? (Quote references)
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta