The Reserve Bank of Australia Governor Philip Lowe has apologised to people who listened to the RBA guidance which said the cash rate would not be raised until 2024 and took out mortgages.
Dr Lowe appeared at Senate Estimates on Monday morning where he was again questioned about the RBA's pandemic guidance issued in February 2021 which stated the central bank would not raise rates until actual inflation was within the 2 to 3 per cent target.
The Board stated it did not expect these conditions to be met until 2024 at the earliest, however later backtracked on this advice, and has been increasing the cash rate since May 2021.
Greens senator Nick McKim accused the governor of "inducing many Australians to take out mortgages in the belief that interest rates wouldn't rise until 2024".
"Do you think you owe those people an apology?," Senator McKim asked the governor.
"I'm certainly sorry if people listened to what we said and they acted on what we had said and now regret what they had done. So that's regrettable. I'm sorry that happened," Dr Lowe answered.
He said the RBA could have "chosen different language" to better explain the "caveats" and "conditionality" in the advice.
"That's a failure on our part. We didn't communicate the caveats clearly enough, and we've certainly learned from that and if you've had a look at the review for guidance, we're changing our approach to get across the caveats clearly enough."
The head of the central bank said the situation in February 2021, when the guidance was issued was "dire".
"We wanted to do everything we could to help the country get through that," he said.
When questioned about why the RBA board raised rates before inflation met the target, Dr Lowe said he did not accept the RBA had acted prematurity.
"Our thinking was that we would need to see wage growth picking up from the low rate to 2 per cent because we'd had four or five years where wages were growing at 2 per cent and that clearly wasn't enough to deliver inflation and we wanted to see wages growth pick up close to 3 per cent."
Inflation is currently at a record high at 7.3 per cent, but Dr Lowe said the Reserve Bank expects inflation will drop to the target 3 per cent by 2024 and that wage growth is "achievable".
"We want to see wages increase but we've got to be realistic when inflation is the highest it's been in 30 years," Dr Lowe said.
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