Al-anwar Newspaper English news in Australia
The Reserve Bank of Australia will no longer disclose interest rate predictions except in “extreme circumstances” after noting the “extensive criticism” it received over its governor’s error.
The central bank on Tuesday released the minutes from its November board meeting and the findings of an internal RBA review of its so-called forward guidance during the Covid-19 pandemic.
RBA governor Philip Lowe had flagged the review in May after he admitted the central bank’s pandemic guidance that interest rates would not rise until 2024 was incorrect.
The cash rate had been set at a historic low of 0.10 per cent in November 2020 in a bid to ease the economic crunch of the Covid-19 pandemic and associated lockdowns and job losses.
Mr Lowe said late last year that rates would remain low until 2024.
He told a parliamentary inquiry in September that he had never promised or committed to that timeline, but he accepted people interpreted his “conditional” statements to mean that.
Nevertheless, he has copped criticism over the central bank’s decision to hike the cash rate at breakneck speed since May.
The central bank has been lifting interest rates in a bid to discourage consumer spending and bring soaring inflation – which hit a 30-year high of 7.3 per cent in September – back within the RBA’s target of 2 to 3 per cent.
According to the minutes from their meeting on November 1, the RBA’s board members noted the “time-based element” of the forward guidance had been “prominent in media and market commentary” and had come to “dominate the interpretation” of what the bank had said.
“As a result, the bank had attracted extensive criticism when the cash rate was increased much earlier than the time-based element of the board’s conditional guidance had suggested,” the minutes said.
“The time-based aspect of the forward guidance had not been well suited to the unprecedented global events.”
The RBA board has decided following its internal review that forward guidance on interest rates “will not always be provided”.
The RBA will keep reporting “qualitative” guidance, signalling a return to publishing broader economic forecasts which are more vague.
