Lowe's style is part of an evolution in transparency
Interest rates have been on hold for ten straight months
When Philip Lowe, in his first statement as Reserve Bank of Australia Governor, said the bank wasn’t full of “inflation nutters,” he added some rare color to the often dry world of central bank speak.
Nine months into his tenure, Lowe has continued to show he’s a good talker – in terms of both quality and quantity. He’s given nine public speeches, compared with predecessor Glenn Stevens’ four in the same period, and added up to 200 more words to the bank’s monthly policy statements that can sometimes move the currency with the insertion of just a few letters.
It could be that Lowe feels the need to offer more detail to the market in these uncertain times. Or perhaps, with rates being on hold for 10 straight months and headline inflation back in the central bank’s target range, he’s had a bit more time on his hands to pontificate and even wade into areas such as tax and government spending.
“Phil has been a little more prepared to say what he thinks about things that are not completely within the Reserve Bank’s remit,” says Saul Eslake, an independent economist and RBA watcher since the 1980s. “All new governors want to put their stamp on things, and there’s been a steady trend towards more open, regular and relevant communication out of the RBA going back to Bernie Fraser’s time,” he added, referring to the governor of 1989-1996.
The RBA chief is still behind longer-serving peers like Federal Reserve Chair Janet Yellen and Bank of England Governor Mark Carney, who have both made at least 10 public speeches since September last year, according to the central banks’ websites.
Lowe’s style can be seen as part of an evolution in transparency: his predecessor Stevens was the first to put out statements explaining the bank’s rate decision the same day the board met, and first to publish the minutes of that meeting.
Given the RBA’s current lack of room for policy maneuver, with interest rates already at a record low, it makes sense for Lowe to try to guide expectations. A well-targeted comment on inflation can sometimes be just as effective as policy action in its real world impact.
Yet the power of such commentary is hard won. The central bank must first build up a long track record of credible decision making and communication. Lowe is fortunate on that front.
The RBA need only look across the ocean to see what can happen when messages are mixed.
Reserve Bank of New Zealand Governor Graeme Wheeler was rounded on by economists after cutting rates in March 2016, just five weeks after saying he was in no rush to ease policy. The surprise caused the Kiwi dollar to drop more than one U.S. cent.