Closed shop: QIC’s stinging attack on RBA’s ‘tame board, careerist leadership’
The State Government-owned QIC has publicly attacked the Reserve Bank, claiming it was too inward-looking and run by careerists who were dragged into the current interest rate-hiking cycle by the market.
QIC economist Matthew Peter has said the RBA is too inward looking.
QIC chief economist Matthew Peter said the fact that the central had to be forced into increasing interest rates by the market was “a damning assessment of the RBA’s handling to monetary policy”.
The RBA has faced criticism over its forecasts including that interest rates would not rise before 2024 despite money markets contradicting that forecast months before the central bank lifted its cash rate last year. The cash rate was increased eight times last year.
The criticism includes the possible outcome that thousands of borrowers made financial assessments on the borrowing capacity on the back of that RBA forecast.
Widespread criticism has led to the Federal Government initiating a review of the RBA headed by senior economist Renee Fry-McKibbon. A report was expected to go to the Government in March.
“The RBA has become an organisation that is too inward-looking,” Peter said.
“For a generation, RBA governors have been drawn from RBA careerists. One must go back to 1989 and Bernie Fraser’s appointment from Treasury to find a non-RBA careerist at the head of the bank.
“Combined with tame RBA boards, this has led to an organisation lacking in ability to critique its analyses of the economy and its policy decisions.
“It is this lack of introspection and reflection on past errors that unsettles markets more than any actual policy mistakes that the RBA makes.
“Hence the appropriate outcome the Review is to the open the RBA to competent external influences, both within the RBA management and the RBA board.”
However, Peter said while the inflation dragon was not dead it was “mortally wounded” but central banks would continue to twist the knife over the first quarter of 2023 “until it dies definitively over the second half of the year”.
“If inflation slows and the economy avoids recession, as we anticipate, there is no reason why the RBA should cut rates dramatically until the next downturn in the business cycle eventuates,” he said.
“However, if the slowdown threatens a prolonged period of below trend growth (in excess of three quarters), then the RBA will indeed be cutting rates by 2024 by as much as one percentage point.”
