Yahoo Finance RBA admits it did a ‘terrible job’ on interest rates
The RBA board member admitted the bank could have done better.
It’s not everyday you hear a member of the Reserve Bank (RBA) board slamming their own decisions, but that is exactly what happened yesterday.
RBA board member Ian Harper told a panel in Melbourne the central bank was probably too cautious when the pandemic hit.
Harper said the central bank had a hard time balancing its job of keeping the Australian financial system stable and keeping inflation within the 2-3 per cent target range.
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“Both of those things led us to be extremely cautious. With hindsight, excessively cautious in how we set interest rates during that time,” he said.
“With the benefit of hindsight ... it looks like we did a terrible job. When you look backwards, oftentimes you see things much more clearly than you do at the time.”
When the COVID-19 pandemic hit Aussie shores, the RBA reacted by cutting interest rates drastically to a record low of 0.1 per cent.
This was done to keep money cheap to stimulate the economy and avoid a recession.
However, supply chain issues and the war in Ukraine saw prices skyrocket and, with everyone flush with cheap cash, they were willing to pay the inflated prices - and that is how our inflation problem began.
Are we heading towards a recession?
The International Monetary Fund (IMF) released its World Economic Outlook report this week and it paints a dire picture for the Aussie economy.
With GDP sitting at 3.7 per cent in 2022, the IMF is predicting this will fall to 1.6 per cent in 2023 and 1.7 per cent in 2024. While not negative growth, it is still a major setback.
Australia is considered to be in a technical recession when there have been two quarters of negative growth. So, while a recession is not expected, the economy will still likely take a hit.
GSFM investment strategist Stephen Miller said the RBA still had a tough job ahead of it to avoid a recession.
“As the governor has mentioned, the path between the vanquishing of inflation and avoiding a recession - or at least a sharp growth slowdown - is a narrow one,” Miller said.
“If the RBA persists with its ‘pause’, the governor’s path could get ‘tightrope narrow’ – and the safety net looks ragged.”
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