Dr Leigh, who before politics was an academic economist at the Australian National University, said he would use the committee hearing to press the RBA on what he considered a series of missteps that had hurt the economy and particularly the nation’s unemployed.
“Under governor Lowe’s term, the bank has missed its inflation target band. [Former governor] Glenn Stevens had inflation almost precisely in the middle of the band but that’s not what has happened under governor Lowe,” the Labor MP said.
“What this means is that we’ve had inflation lower than it should have been and unemployment has been higher than it should have been.”
Asked if the RBA had got interest rate settings wrong, Dr Leigh said: “Yes.”
“The RBA spent 2018 saying that it was more likely than not that the next move in interest rates would be up. That was clearly wrong,” he said.
Dr Lowe, who became governor in September 2016, oversaw his first interest rate cut in June, followed by a second last month to a new record low of 1 per cent. Markets believe the bank will take the official cash rate to 0.75 per cent by October and to 0.5 per cent early next year.
The bank has defended its rate cuts, arguing the country can do “better” than its current unemployment rate of 5.2 per cent. It has signalled 4.5 per cent as the rate needed to put upward pressure on wages, which would then see inflation lift.
Dr Leigh said those advocating for the RBA not to cut rates were in effect supporting fewer people in work and less pressure on prices.
“Those arguing that the RBA should not have cut rates at its past couple of meetings are effectively saying they want unemployment higher and inflation lower,” he said.
Fellow committee member Craig Kelly defended the central bank, arguing it had limited tools to stimulate the economy.
“I think so far so good, but you can only really judge these things at full time,” the Liberal MP said. “It’s hard to judge them in the middle of the football game.
“The RBA’s hands are limited – there are only certain things they can do and [interest rate cuts] are getting less and less effective.”
Mr Kelly said he would quiz Dr Lowe on how long the bank could keep interest rates at record lows without affecting savings and investments for retirees.
“When you lower interest rates, people that are trying to live off investments and savings, it cuts their income,” he said. “It is not just a magic solution – you cut rates and everything is fine and dandy. The economy is a lot more complex than that.”
Late last year, RBA deputy governor Guy Debelle said the bank had looked at the experience of quantitative easing – where a central bank adds to a nation’s money supply in a bid to stimulate the economy – in other countries. While he hoped it was never needed, such a policy was an option, he said.
This week, the New Zealand central bank unexpectedly cut interest rates there by half a percentage point despite unemployment falling to 3.9 per cent. It was one of three central banks to cut rates this week.
Ahead of the committee hearing, the RBA’s assistant governor for the financial system, Michele Bullock, used a speech in Queensland to reveal the bank was aware of the challenging situation facing the retail sector.
Household consumption is around its lowest level since the global financial crisis, with the South African parent company of the David Jones chain of department stores recently slashing the value of the retailer due to “unprecedented” economic pressures.
Ms Bullock said while large discretionary good retailers appeared in “good financial health” overall, the situation was tougher for small and unlisted businesses.
“Domestic retailing, particularly bricks-and-mortar retailing for discretionary goods, has been experiencing challenging conditions in recent years,” she said.
“Competition from both large international and online retailers has been intense; consumer spending is growing slowly and consumer preferences are changing.”
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.
Eryk Bagshaw is an economics correspondent for The Sydney Morning Herald and The Age.