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RUBY:

From Schwartz Media, I’m Ruby Jones, this is 7am.

Philip Lowe, the governor of the Reserve Bank, has already had to apologise for his forecast that interest rates wouldn’t rise.

He now acknowledges that people may have taken his prediction that rates were unlikely to rise until 2024 as an assurance, and as a result they might have taken out mortgages, bought homes, and saddled themselves with debt that’s more expensive than they thought.

It was under that pressure that Lowe made his way to Canberra last week to answer questions about his decision making.

Today, chief political correspondent for The Saturday Paper, Karen Middleton on what Philip Lowe said in Canberra last week, and whether his job is on the line.

It’s Monday February 20.

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RUBY:

So, Karen, a few days ago, the head of the Reserve Bank, Philip Lowe, appeared before a Senate estimates committee. How would you describe his appearance? Both the nature of the questions that were posed and the way in which he answered them?

KAREN:

Well, he was there for 90 minutes, and that's because there's been just so much focus on the activities of the Reserve Bank. And we saw another interest rate rise just the week before. So there was a great deal of interest in how the bank is operating and how it's making its decisions.

Archival tape -- Senator:

“Good morning all, good morning minister, you’re ready to go over there? Excellent.”

KAREN:

Philip Lowe is a sort of an unflappable character. He's got a very sort of moderate demeanour.

Archival tape -- Philip Lowe:

“Thank you, Senator, for the invitation to join you. We don't have an opening statement. We’re really just here to answer your questions.”

Archival tape -- Senator:

“Okay. Thank you very much for..”

KAREN:

He smiles a lot. He has a sort of almost a nervous laugh, which is a bit disarming for some people, I think. And his appearance there was a little bit explanatory, a little bit defensive. He was defiant in some parts when he was questioned about whether he should be the one taking the blame for the pressure that was now on mortgage holders and renters for their higher interest rates. And he said, well, I'm just one member of a nine member board. So there was a bit of defiance there.

Archival tape -- Philip Lowe:

“It's not just me. I find sometimes that the fact that it's all sheeted down to me is a bit unfair but…because it's the board, there are nine of us, including Michelle, who made these…”

KAREN:

And he was a bit remorseful about the pressure. He said he understood the pressure that people were under as a result of these decisions, that he knew it was making life harder and things more expensive because rates were going up and people had taken out mortgages in particular when rates were very low, and that now they were facing extra pressures.

Archival tape -- Philip Lowe:

“And it's really tough, I understand that. And, you know, I read those letters and hear those stories with a very heavy heart.”

KAREN:

But that he had a job to do and he had to do it.

Archival tape -- Philip Lowe:

“I also understand that if we don't get on top of inflation, it means even higher interest rates and more unemployment, so…”

KAREN:

The public pressure he's under is huge. It's quite interesting in the Senate committee that the questioning was perhaps not even as tough as you might have expected because the coalition senators were actually defending him and defending the bank. The Labor senators, the government senators went quiet. They decided it wasn't appropriate to be attacking the governor. And it was the Greens really that were raising the most direct questions about Philip Lowe’s performance and whether he should be sacked, as it were.

Archival tape -- Senator:

“Can you explain to the renters and mortgage holders of Australia why you still deserve to hold your job?”

Archival tape -- Philip Lowe:

“I have a seven year term as the Governor of the bank and I intend to serve out that term, it’s an important job..”

RUBY:

Okay. And on the day that Lowe appeared at those hearings, several banks posted record profits, including the Commonwealth Bank and of course, Lowe's monetary policy decisions, they aren’t made with those profits in mind. But Lowe was asked about whether it is right for those profits to be posted while mortgage holders are doing it as tough as they are. What did he say about that?

Archival tape -- Senator:

“What do you say to the renters and the mortgage holders of Australia who are getting smashed by the interest rate increases while the major banks are pulling in mega profits?”

KAREN:

Well, he said again that he understands that it's hard for people to accept that banks are making a profit while they're struggling so much. But he said profitable banks are important for Australia, they're important for our economy. It's a positive for the country.

Archival tape -- Philip Lowe:

“The banks are profitable. It's true. It's a positive for the country. You want strong, resilient banks. I know it's hard for people to accept when they're suffering problems with their personal finances, but the country is better off from having strong, resilient, effective banks who can provide the financial services that we need.

Archival tape -- Senator:

All right. Thank you.”

KAREN:

He was emphasising to people that even though it looked bad for them, that it was important for the system.

RUBY:

And that's interesting, isn't it, Karen, as well, because Lowe was also questioned about this private talk that he gave to some Australian bankers in the days before the Senate committee hearing. So what do we know about that private event and what kinds of questions was he asked about his decision to attend?

KAREN:

Yes, it was interesting. It had been revealed in the Financial Review the weekend before that he had given this talk to the Barrenjoey private investment firm. This is not unusual, he does do this sort of thing, but it was the fact of the timing that was in question.

Archival tape -- Senator:

“You seemingly made a choice between speaking to the Australian public and attending a cosy lunch.”

KAREN:

So we had a Tuesday meeting and a Friday statement on monetary policy. And in between those two things, Philip Lowe went to this lunch at Barrenjoey and addressed this meeting of only about 20 people in private.

Archival tape -- Philip Lowe:

“I thought that was manageable, but I hear many people are concerned about that. So we’re responding to that and we will no longer do those type of lunches before the release of the statement on monetary policy.”

KAREN:

It was the fact that he was speaking privately to these bankers and bond traders and not publicly that was in question. And the thing that piqued people's interest was that the bond markets moved during the period that he was at the lunch.

Archival tape -- Senator:

“Dr. Lowe, you've addressed to a degree your Barrenjoey luncheon, and I think thank you for your commitment to make more public statements before you do events like that in the future, I think that's a good thing. But can I ask you, what did you share with a bunch of bankers that are at the Barrenjoey banquet that you can't share with mortgage holders and renters? And why did the bond market jump so markedly actually during that lunch that you had? What did you say to them that pumped up the bond market so markedly while you were actually at that lunch?”

Archival tape -- Philip Lowe:

“What did I share with them? I shared the messages in the statement…”

KAREN:

So that made people who weren't at the lunch ask, was it something that he said to those traders at the lunch that caused the markets to move?

RUBY:

We'll be back in a moment.

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RUBY:

So, Karen, Philip Lowe, He takes this invitation to speak at a private lunch for bankers. And there is this suggestion that sometime during that lunch the market moved and that could be connected to whatever it was that was said in that room. So what did Lowe say about that? And can we really know whether his speech actually had an effect on the market?

KAREN:

Well, it was very interesting. He came to the Senate estimates hearing expecting to be asked about that and wanting to make a statement about it. And he had prepared information to impart about it because he understood there was public concern and he stepped through in a lot of detail the time that he arrived at the lunch.

Archival tape -- Philip Lowe:

“These are the facts as I know them and I want to share those with you. I arrived at the lunch at 12:30 after the executive committee at the bank, and then I had a brief discussion with the CEO …”

KAREN:

Then he started speaking to the lunch at about 10 to 1, then he left the lunch at about 2:00. And he then went through what happened on the markets. He said the markets actually had started to move around noon.

Archival tape -- Philip Lowe:

“They started rising at 12, they'd been rising earlier in the morning and then for an hour or two they'd been flat, and then they started rising at 12:00.”

Archival tape -- Senator:

“So you don't think there's a correlation.”

Archival tape -- Philip Lowe:

“And then they rose kind of fairly certainly between 12 and 2:00, exactly the same movements…”

KAREN:

But he also said that there was a similar movement in the New Zealand markets at the same time. Now, he didn't give any explanation. That was an alternative to the lunch conversation as to why the markets might have moved. But his message clearly was, look, it wasn't anything I said it was happening anyway.

Archival tape -- Philip Lowe:

“They’re the facts as I know it, and I can't say any more, but I think we've investigated thoroughly and that's what we've found.”

Archival tape -- Senator:

“Alright, thanks Dr. Lowe…”

KAREN:

Now, you know, there are people who accept that and there are other people who are questioning whether something that he said still might have had an effect on the market. I spoke to independent economist Chris Richardson, and he said he's not convinced that there was no impact of those remarks, that he thinks that there were things said in that meeting that contributed to that market movement. Now, Dr. Lowe conceded that the timing was problematic, having had the board decision and then a private lunch before issuing the fuller explanatory statement or doing anything in public, wasn't ideal. Philip Lowe under questioning in the Senate, said he needs to speak to private banks and investment companies and traders because he's not only imparting information, he's also gathering information. And he needs to hear what they think.

Archival tape -- Philip Lowe:

“There's nothing untoward here. It's appropriate. I can't live in a bubble. I need to talk to people and I need to hear what financial markets say. And I like asking people questions. You asked me questions today. At these lunches, I asked people questions about what they think.”

RUBY:

Do you think, though, that this gives us an insight at all into the culture within the RBA? The fact that Lowe didn't perhaps foresee what people might think of his decision to speak to bankers in a closed door meeting, before he spoke publicly?

KAREN:

I think it does, and it's interesting. I also spoke to Dr. Peter Tulip. Now, he's an economist who used to work for the Reserve Bank and he also worked for the United States Federal Reserve. He's now at the Centre for Independent Studies. He thinks there's an unhealthy culture of secrecy there that doesn't exist in comparable banks elsewhere, including in the US. He thinks there should be more transparency and that this culture of secrecy breeds a bit of elitism and it feeds into monetary policy. And he thinks that means that bad decisions can be made because there isn't enough airing of the bank's views and enough dialogue with the wider public as well as these people in private. It's important that the bank governor does engage with the private sector because he is wanting to understand what's going on in the private sector. He wants to have conversations in private.

But the question is, is he getting information from wide enough sources? Is he looking at the broader economy or are they taking too narrow a view in these secret private meetings and in late lunches and not having that feed into sort of real world economics? And that's where the debate, I think, has moved to now.

RUBY:

It does all seem to point though to a bigger problem that Philip Lowe is facing right now and that is a problem of communication, because while he is standing by the decisions that he's making as the RBA governor, whether that decision is to raise rates or to speak at a private investment firm lunch, he is constantly being forced to defend himself and the way in which he's communicated those decisions. I mean, it wasn't that long ago that he was forced to apologise for the comments that he made, which some people interpreted too mean that rates wouldn't rise for several years. So, I mean, it seems like he’s fairly often on the back foot.

KAREN:

That's right. And communication is really key in this whole debate about the activities of the Reserve Bank. And there's a lot of focus on how they communicate them to the public. And in fact the Treasurer Jim Chalmers, raised this the weekend before last and said he's concerned about the communication and he wants it examined. He's set up this review of the operations of the Reserve Bank by an independent panel and among the elements of that it will look at this issue of communication. So that's why there's been so much focus on Philip Lowe as the governor as opposed to the wider board, and he's acknowledged now that he needs to think more about that.

RUBY:

And Lowe's future, it does seem uncertain at the moment. The government is in the process of reviewing the RBA, as you mentioned, and it remains to be seen whether or not Lowe's term as governor will be extended like those of the RBA governors before him. So how are things looking for him and what is your assessment of his relationship with the Treasurer Jim Chalmers, right now?

KAREN:

Well, it's always an interesting relationship between the Reserve Bank governor and the Treasurer. They need to have dialogue on the economy broadly and they need to understand the direction that each other is taking. But because the bank is independent, they also need to not interfere with each other. So Dr. Lowe said to the Senate committee, I don't give advice on fiscal policy, which is what the government does, and the government doesn't give advice to me on monetary policy, which is what the bank does. So they have to have this sort of wall between them as well as having a collaborative relationship on the broader economy. So it's a sort of a strangely tense relationship by that structure alone. It's also interesting to look at the situation with his future. His seven year term comes to an end in September. His two predecessors in the role were extended just for a few years each. So I think they served around about a decade each. And so he would normally naturally be seeking to have an extension, either a full second term or at least a partial term. And that is where there is now a question.

Jim Chalmers, the Treasurer, has said he will receive the review report on March 31st. He will make it public before the budget in May and then the Government has to make this decision about whether Philip Lowe should be extended or not. I would think based on looking at all the commentary at the moment, that it's likely he won't be extended. And interestingly, Prime Minister Anthony Albanese was on radio on Friday morning and was asked about this point.

Archival tape -- Charlie Pickering:

“You brought up the RBA Governor Phil Lowe. Are you going to give him a second term as governor of the RBA?”

Archival tape -- Anthony Albanese:

“Oh, he's doing his job now. And we have confidence…”

Archival tape -- Charlie Pickering:

“He's doing his job now. That's hardly a ringing endorsement, Prime Minister.”

Archival tape -- Anthony Albanese:

“Well a decision has not..but he has the Government's confidence. And the Reserve Bank, of course, make these decisions independently. And it's very important…”

KAREN:

It looks to me like the government is positioning to leave itself the option of not renewing him. We've certainly seen some Labor backbenchers and in fact also the Assistant Treasurer, Stephen Jones, criticising the bank publicly for these repeated interest rate rises and the pressure people are under. So there is some pressure coming from some in government ranks on the bank and all of that adds up to a picture that would suggest that if I was Philip Lowe I'd be thinking maybe they're heading towards not renewing me.

RUBY:

Karen, thank you so much for your time.

KAREN:

Thanks, Ruby.

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RUBY:

Also in the news today…

Tens of thousand of homes from parts of Sydney through to the Central Coast and Newcastle were without electricity over the weekend after a freak storm brought down powerlines.

Electricity distributor Ausgrid said that around 30,000 customers were without power and Endeavour Energy added that 33,000 of its customers were affected across Sydney’s west, the Blue Mountains and the Illawarra.

And…

Former US President Jimmy Carter’s family has announced he is entering end of life care, but has chosen to stay at home.

Since losing the presidency in 1981, Carter founded a centre to independently monitor elections around the world. It has observed around ​​133 elections from Venezuela to Tunisia and Myanmar.

The former president is 98, making him the longest-lived American president ever.

I’m Ruby Jones, this is 7am. See you tomorrow.

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