Former Reserve Bank of Australia governor Philip Lowe has stated that high interest rates are not the primary cause of Australia’s ongoing cost of living crisis. In an interview with The Australian newspaper, he attributed the nation’s economic difficulties to poor productivity rather than interest rates themselves. According to Lowe, while elevated interest rates may have dampened aggregate demand by around 1 per cent this year, the stagnation in productivity growth has had a more significant impact, reducing demand by approximately 9 per cent.
Lowe expressed concern that Australian politicians are increasingly reluctant to tackle the essential structural reforms needed to address these economic issues. He believes that the lack of political will to make challenging policy decisions is hindering progress. "The problem isn’t an economic one; we broadly understand what needs to be done. It’s a political issue—our society has lost the ability to unite and implement tough measures that may hurt some in the short term but benefit future generations," he commented.
He emphasised that the declining living standards, which had been improving for many decades, are causing rising discontent among the population. Without intervention to foster productivity growth, Australians are likely to continue facing economic challenges.
Lowe’s remarks come just before the expected release of national accounts data by the Australian Bureau of Statistics, which will likely inform Prime Minister Anthony Albanese’s decision regarding an impending federal election. Economists anticipate that this data may show a slight improvement in GDP growth following a notably difficult period characterised by seven consecutive quarters of negative per capita GDP growth.
As the political landscape watches closely, parties, including Labor and the Coalition, are bracing for the implications of these economic figures. Although the federal election date has yet to be confirmed, it must occur before May 17.
Lowe himself faced criticism for overseeing twelve interest rate hikes during his tenure, especially following his earlier comments that rates would remain unchanged until 2024. He concluded his directorship in September 2023, succeeded by Michele Bullock.
In summary, Lowe’s insights highlight the critical distinction between economic policy and political accountability, emphasising the necessity for decisive action to enhance productivity and alleviate the current financial pressures faced by Australians.