Credit: <\/span>Louise Kennerley<\/cite><\/p>\nHe also used the address in Sydney on Thursday to argue that high house prices across Australia had become a social and economic problem.<\/p>\n
The Reserve Bank aims to keep inflation between 2 and 3 per cent. Lowe said during his term, it had averaged 3 per cent, swinging between a low of minus 0.3 per cent during the depths of the pandemic and 7.8 per cent late last year.<\/p>\n
Lowe warned it would become increasingly difficult to hit the inflation target.<\/p>\n
\u201cMy view is that it will be difficult to return to the earlier world in which inflation tracked in a very narrow range,\u201d he said.<\/p>\n
\u201cThe increased prevalence of supply shocks, deglobalisation, climate change, the energy transition and shifts in demographics mean either steeper supply curves or more variable supply curves.<\/p>\n
\u201cWhile this doesn\u2019t mean that the inflation target can\u2019t be achieved on average, it does mean that inflation is likely to be more variable around that target.\u201d<\/p>\n
Lowe said the issue that had defined his term more than any other was his comments about the timing of the first increase in official interest rates. As late as the end of 2021, Lowe said publicly that rates were unlikely to start being increased from their low of 0.1 per cent until 2024.<\/p>\n
The RBA started lifting rates in May 2022.<\/p>\n
Lowe argued his comments were interpreted as a commitment rather than as a conditional statement, adding that at the time there were real worries of unemployment climbing as high as 15 per cent and a deep recession.<\/p>\n
But he conceded the bank, which apart from cutting interest rates also injected hundreds of billions of dollars into the economy as part of its quantitative easing program, had done too much.<\/p>\n
\u201cWith the benefit of hindsight, my view is that we did do too much. But hindsight is a wonderful thing,\u201d he said.<\/p>\n
\u201cNone of us can predict the future and we have had to make decisions under great uncertainty and with incomplete information. We got some things right, but we got other things wrong.\u201d<\/p>\n
Lowe argued that while interest rates influenced house prices, they were not the reason Australia had some of the highest priced housing in the world.<\/p>\n
He said Australia\u2019s interest rate settings over recent years were similar to those in other countries. House prices here had been largely affected by other issues and reflected Australians\u2019 own choices.<\/p>\n
\u201cIt is the outcome of the choices we have made as a society \u2013 choices about where we live, how we design our cities, and zone and regulate urban land, how we invest in and design transport systems, and how we tax land and housing investment,\u201d he said.<\/p>\n
\u201cIn each of these areas, our society and politicians have made choices that lead to high urban land and housing costs. It is by tackling these issues that we can address the high cost of housing in Australia, which I view as a serious economic and social problem.\u201d<\/p>\n
Lowe also used the speech to suggest there might be new ways for governments to deal with the economy that would take some pressure off the Reserve Bank.<\/p>\n
Removing some powers of the government over public spending could help deal with emerging economic issues with which the use of interest rates alone might struggle, he said.<\/p>\n
\u201cFiscal policy could provide a stronger helping hand, although this would require some rethinking of the existing policy architecture.<\/p>\n
\u201cIn particular, it would require making some fiscal instruments more nimble, strengthening the (semi) automatic stabilisers and giving an independent body limited control over some fiscal
instruments.\u201d<\/p>\n
Lowe will hand the Reserve Bank\u2019s top job to his deputy, Michele Bullock, on September 18.<\/p>\n
Cut through the noise of federal politics with news, views and expert analysis. <\/b>Subscribers can sign up to our weekly Inside Politics newsletter here.<\/b><\/em><\/p>\nMost Viewed in Politics<\/h2>\nFrom our partners<\/h3>\n
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