Scott Morrison will rue the two words on Philip Lowe’s coffee mug: HALF FULL.
They represent the philosophical statement of optimism that presumably helped guide the Reserve Bank Governor through the pandemic.
And they may partly explain why Lowe held on so long—too long, according to many—before lifting rates; why he didn’t heed the inflationary pessimism that was breathing loudly through the keyhole of his Martin Place office.
That is until he was forced to pull the RBA’s cobwebbed rates lever, just 18 days before the Prime Minister sought re-election on the back of his economic and national security credentials.
The PM’s twin boasts have been punctured during the campaign.
First by Solomons Prime Minister Manasseh Sogavare, whose dalliance with a calculating and deep-pocketed Beijing has embarrassed Morrison on foreign policy.
And now Philip Lowe’s late conversion on rates, which undercuts the PM on the economy, notwithstanding the fact that the official cash rate could not possibly remain at 0.1 per cent much longer.
In the searing glare of an election campaign, how could it not reflect on a Prime Minister who in November said Australia’s economic recovery was best secured by “people who have a track record of economic management”?
“Otherwise, you’re going to see petrol prices go up. You’re going to see electricity prices go up. You’re going to see interest rates go up more than they would need to,” Morrison said.
The squeeze sets in
On each of these cost-of-living fronts, Morrison’s rhetoric has been squeezed by the triple grip of lived experience.
The war in Europe has seen fuel prices surge. Wholesale power prices have doubled in a year. And now, interest rates have started a sharp march north.
At the same time that Morrison was nominating petrol, power and rates as the points of comparison between him and Anthony Albanese, Philip Lowe was holding a line contrary to the industry pundits.
While the market was pricing in a bevy of interest rates in 2022, Lowe was claiming it remained “plausible” that the cash rate would not rise until 2024.
As someone senior said already about someone else during this election campaign: He didn’t miss it by that much. He missed it by that much (arms outstretched).
And that’s not all
With Lowe taking the cash rate to 0.35 per cent on Tuesday, the market is now predicting the cash rate will be 3 per cent by year’s end.
This time, Lowe seems to be largely on board with the market prediction, conceding that “normalising” the cash rate would see it rise to 2.5 per cent albeit over an undetermined period of time.
So much for 2024.
Worse, inflation would also peak at about 6 per cent, Lowe said, not the 3.25 per cent forecast three months ago.
As former federal treasurer Peter Costello quipped, rather uncharitably, to one reporter: “The housewives of Australia had a better grip on inflation than the Reserve Bank board.”
Costello is critical that Lowe and the RBA didn’t move earlier to lift rates, that they’d been “behind the curve”, asserting that the board might have to make greater adjustments to the cash rate to tame high inflation.
The irony in it all
Morrison and Treasurer Josh Frydenberg might also wish Lowe had acted sooner — but for a different reason.
Being outside the combustible atmosphere of the election would have allowed a slightly different analysis: that Australia is heading out of the pandemic settings and into the new normal.
And here’s the irony: as Lowe explained in his statement, the economy’s showing signs of improvement and resilience.
Instead, those observations were buried in a politically charged statement on monetary policy a fortnight from an election, more than 11 years after the last interest rate rise.
Which is, of course, no comfort to a government that’s routinely over-reached in its attacks on Labor on the economy.
Scott Morrison’s mission for re-election, already difficult, became that much more complicated this week.
He’s been trapped by his own rhetoric and then caught in the crossfire of a central bank attempting a tardy catch-up and an opposition that’s craftily framed the Prime Minister for blame.
The perfect political storm.