Australia’s central bank is overly prescriptive in its interest rate communications and would benefit from being more circumspect, according to former Reserve Bank Governor Bernie Fraser.
(Bloomberg) — Australia’s central bank is overly prescriptive in its interest rate communications and would benefit from being more circumspect, according to former Reserve Bank Governor Bernie Fraser.
The RBA hiked last week by a quarter-percentage point, as expected, but Governor Philip Lowe surprised investors when he added “further increases in interest rates will be needed over the months ahead” to contain inflation.
Fraser, who headed the central bank from 1989-1996 when the inflation-targeting regime was introduced, worried about the phrasing Lowe used.
“The market has sort of jumped on and interpreted this as the likelihood or near-certainty of another three or four increases,” he told Australian Broadcasting Corp. Wednesday. “That’s unhelpful and doesn’t provide the kind of confidence that the bank should be striving to enlist with the community.”
Fraser said it would be better to be “cautious and prudent” in the language used to forecast future rate movements.
His comments add to a chorus of criticism of Lowe’s mixed messaging during the current tightening cycle, the most aggressive since Fraser was at the RBA’s helm. Lowe was also highly explicit in guidance during the pandemic, when he said conditions for a rate rise were unlikely to be in place until 2024.
That was dumped after inflation surged in 2022 and the governor’s comment has been thrown back at him after each of the RBA’s nine consecutive rate hikes since May.
Speculation is mounting now that Lowe won’t be offered an extension when his current seven-year term expires in September. Treasurer Jim Chalmers has said the findings of an independent review of the central bank — due at the end of March — will help guide him, with a decision expected around midyear.
The Australian newspaper reported this week, citing unidentified government ministers, that the governor wouldn’t be reappointed.
–With assistance from Swati Pandey.
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