Transcript of Question & Answer Session Remarks at the Reserve Bank Board Dinner

Thanks very much, Governor Lowe. As the Governor mentioned, he’s willing to take a few questions before dinner is served. So I think we have a microphone at the back and a few journalists in attendance, I know, but guests tonight are welcome to ask a question. Put your hand up and a microphone will be brought to your table. While you’re thinking about that, we’ll start at the back with Crystal.

Hello, Crystal Wu from Sky News. In the spirit of the RBA Review, can you give us some perspective about the different views around the RBA board table today; was the final decision to raise rates unanimous among the Board?

Well, if you read the Minutes from the previous meeting, that decision last time was finely balanced and the Minutes of that meeting set out the arguments to pause and to increase rates again. We considered the same set of arguments again today and the balance tipped the other way; and it tipped the other way because, over the past month, we saw further evidence of the strength of the labour market, the persistence of global inflation and the persistence of services pricing inflation here. So the Board as a group worked through those issues and we reached a strong consensus that this was the right time to move again. So both last month and this month the decisions were finely balanced, but given the flow of data, we came to a strong consensus that it was time to move again today.

Governor, I’d rather be me than you. I’ve been around a long time and I lived through inflation through the 1980s. For those who don’t know me, I’m President of the The Pastoralists and Graziers Association, I represent a very large group of people who are involved in export. What happened then just about ruined regional Australia; it hasn’t recovered from the inflation at that point. But you seem relatively happy about the seven per cent: it needs to come down but not to hurry; we can take as long as we like. If we had three years at seven per cent, that’s 20 per cent gone and that’s our margin; it’s all over. There is not enough room in our industry to sustain that level of inflation. Now, the situation we find ourselves in now is not an accident; this was caused by a federal government that borrowed a staggering amount of money, threw it into the economy and overstimulated that economy, and you could see this coming—blind Freddy could see this coming—from miles away. So the question I’d like to ask you, I’m an exporter and we have covered this ground before, do you have on your Board, not the big mining companies but the little guy: the little guy who has to produce a product and compete against Brazil, Argentina, USA and Canada? Do you have someone with hands-on experience of running a small business that can give you the real heads-up of what’s happening in our industry? And the other one: small business is the biggest business in Australia, and you said to me earlier on this evening you don’t have anybody from small business. These are the people that actually have to engage someone, work out their super, their workers’ compensation, their tax. This is a massive industry, and you said you don’t have anyone there. You need to have on the Board some real people that are doing real things and wearing the brunt of decisions that I think you and the Board in many cases are very isolated from actually being involved in. Thank you.

Well, we have nine people—nine dedicated and distinguished Australians—on the Board, trying to make decisions in our collective interest, so that’s just nine. But we have a very extensive liaison program, and Aaron Walker, our representative here in Perth, talks to businesses in Perth on a regular basis. And anyone who is not talking to Aaron and his team already: I encourage you to go and get his card and talk to him. So we reach out through lots of different mechanisms, including through Aaron and his team, and each month they write a report for us and that feeds up into the Board. But the Board Members, I think this is an important point, are not there to represent sectional interests in Australia; they’re there to represent the 26 million people who are lucky enough to live here, and they do that with distinction. And we draw on Aaron and his colleagues in our state offices to touch into business on a regular basis.

Well, I’m suggesting you talk to the real job creators.

Thanks very much, Tony.

Governor, good evening, Adrian Lowe from The West Australian. Welcome back to Perth. You’ve been accused, since the decision today, of playing recession roulette with another unnecessary rate rise. How do you feel at that characterisation; and, given you’ve spoken about a narrow path for the economy since June or July last year, do you feel that path is now getting narrower and will continue to do so?

No, I don’t think it’s getting narrower. As I said in my prepared remarks, our assessment is we’re still on that path and, while there’s a lot of uncertainty, it’s quite plausible we can stay on it. Inflation is coming down, it’s going to take a while, but it is coming down; and the labour market is still strong. Unlike some other Central Banks, we haven’t raised rates quite as high, and one reason we’ve not raised rates as high is we want to preserve these gains in the labour market; I think we can, and we haven’t had any information to suggest otherwise. But we can only do this if people believe that inflation is going to come down, and that partly underpins our decision today. The rate rise today, I hope you all understand, is because we want to bring inflation down; we’re serious about it—we’re deadly serious about it—and we will do what’s necessary to bring it down. If you believe that, then I hope in your business decisions you don’t put your prices up as much and I hope it reflects the outcomes in the labour market as well. I think we can stay on this narrow path; certainly, that’s our intention.

Thank you. It’s fun to be on this side of the camera for a change, so that’s quite good. Thank you, Governor. I consider you the voice of reason economically, particularly when it’s not popular. Can I ask you though about the economic modelling that the Reserve Bank has been undertaking because it looked as though the Reserve Bank was a little surprised with inflation shifts? Are you confident that that modelling is still accurate and reflective; have you adjusted the parameters and the assumptions within it; and is it still a really useful model going forward, or does it need to be looked at and checked?

We don’t have just a single model; we have lots of them. And anyone who’s done modelling knows there are error terms in models, and we’ve seen those over recent times. One thing we’re spending more time on is trying to understand the impacts of shocks to the supply side of the economy because much of the inflation that we’ve experienced recently is because of supply shocks, both in the Australian economy and globally. One issue that we’re working on I think—and I didn’t really touch on this this evening but I did in the post-meeting statement—is the need to lift productivity growth in the country. The level of output produced per hour of work in Australia today is the same as it was three years ago: no growth in labour productivity over three years. If that remains the case, then the challenges that we face at the Central Bank are going to be more difficult to deal with and the challenges that you face, as either business or community leaders, are going to be more acute. So this is something that the Central Bank can’t really do very much about: weak productivity growth. But it certainly affects our job a lot, and I’m sure it’s affecting your jobs as well. So the call that I made before and I repeat tonight is, as a Nation, as businesspeople, as community leaders, as government people, we need to put our shoulder to the wheel here and do what we can to lift productivity growth because that’s the only way we can have faster growth in real wages; it’s the only way to support the Budget, where there are increased needs; and it’s the way to improve our living standards. The last three years have been unusual for lots of reasons, but we need to return as a Nation to stronger productivity growth and we’re trying to model kind of the implications of that. But we do know, if we stay where we are, life becomes a lot more difficult. But we’re optimistic that we can do it, but we need to work at it.

Governor, thank you for your time. What is the ‘reasonable time frame’ that you have in mind for inflation; and how do you think that time frame will sit with struggling families who are seeing you all dine out tonight at taxpayers’ expense?

In terms of the time frame, we’ve said that we expect inflation to get back to the top of the target range—that’s three per cent—by roughly mid-2025, so that’s the time frame we’re working on. I think if we can do that, if we get inflation back to three per cent in a couple of years and the unemployment rate goes up, maybe to 4½ per cent, my view is that will be a really good outcome for the country. We could try and get inflation back down more quickly, but how would we do that? We’d do that with even higher interest rates, more family stress and a loss of jobs, and the judgement that we’ve made is that the benefit of getting the inflation rate down six months or a year earlier isn’t worth the loss of hundreds of thousands of jobs. That’s the judgement we’ve made. Another judgement we’ve made is we can’t wait forever for to come back inflation back down. So today’s interest rate increase is about making sure that we have a pretty high level of confidence that inflation will come back down by the middle of ‘25. Much longer than that I fear is too long, because then inflation expectations will adjust and we’ll be in that world of pain I talked about in my prepared remarks. And we’re here in Perth having this fabulous dinner because it’s really important we get out and mix with people, hear from community leaders, hear from business leaders, hear from people in the NGO sector. I live in Sydney and I go to work in Martin Place every day. Australia is a big country and we want to get out there, we want to hear from people, and this is a fantastic way of doing it. And, you know, we’re incredibly honoured and privileged to be able to look out at your beautiful city here, and I look forward to returning here. Thank you.