SUNRISE 20/07/22

20 July 2022

SUBJECTS: Reserve Bank review, interest rate rises, petrol prices.

The Hon Jim Chalmers MP

E&OE Transcript

SUBJECTS: Reserve Bank review, interest rate rises, petrol prices.

DAVID KOCH, HOST: Well, Treasurer Jim Chalmers has announced a historic review into the Reserve Bank of Australia, the government’s bank, our central bank, the most powerful bank in Australia. It’s the first of its kind since the current policy arrangements were introduced in the 1990s and comes as Australians struggle with cost of living amid high inflation and rising interest rates.

Treasurer Jim Chalmers joins me now from Canberra. Treasurer, have you lost confidence in the Reserve Bank?

JIM CHALMERS, TREASURER: Definitely not, Kochie. Thanks for the opportunity to talk about this institution, which is vital to our economy. I think over six decades or more it’s served Australia quite well, but it shouldn’t be beyond the kind of review that we’re announcing today, which is all about giving them the best set of arrangements and objectives and mandates, the best set of governance to make sure that they can make the right decisions into the future.

It's not some exercise in second-guessing the Reserve Bank. It’s not about pointing the finger or taking pot shots at the Governor or his board; it’s about giving him world’s best practice arrangements into the future. That’s why I’ve set up a first-class panel to do this important work. And it’s why I’ve worked with the bank to come up with a terms-of-reference that I’ll announce today as well.

KOCH: Okay. So the Reserve Bank is very happy with this review? They want the review? It’s not being foisted on them by you?

CHALMERS: No, I’ve been working with Governor Phil Lowe. I pay tribute to him; it’s not easy to agree to have your institution looked at in this way. But he is certainly up for it. And he’ll be appearing during the course of the day. I assume he’ll be speaking about it at some point today. But I’ve worked closely with him. I actually started talking with him about it when I was in opposition because I think it’s an opportunity for the Reserve Bank to make sure they’ve got the best arrangements going forward. That’s in the bank’s interests but, most importantly of all, it’s in the interests of all Australians.

KOCH: Okay. But late last year – November, December – the Reserve Bank, Philip Lowe, was telling Aussies, “go out and borrow. Go out and borrow as much as you like on the understanding I’m not going to put up official interest rates till 2024.” Couple of months later he started putting up rates. Was that advice to average Australians negligent? Were they derelict in their duty to lead average Australians up the garden path to get themselves in debt?

CHALMERS: I wouldn’t describe it that way, Kochie. And I think you’d understand –

KOCH: How would you describe it?

CHALMERS: Governor Phil Lowe has talked about that at some length, about that guidance that he gave and about how he considers the economic conditions to have changed faster than the bank anticipated. He’s been pretty upfront about that. And the Reserve Bank is, you know, capable of defending its own decisions. What I try to do as Treasurer, my predecessors from other sides of the political spectrum, all sides, we try not to second guess the independent Reserve Bank.

I’ve got a job to do – that’s to give the Reserve Bank the best set of arrangements, institutional arrangements, and also to make sure the government is doing its bit to deal with some of these supply chain issues which are pushing up inflation as well. And so, I’d rather look forward and talk about getting it right rather than look backwards and second guess.

KOCH: I know you’re being very polite with all of this. And we understand why.

CHALMERS: I’m a polite fella, Kochie.

KOCH: I know. But the reality is, the markets at the time were saying to the Reserve Bank, to everyone, saying, “inflation is roaring back. You’re going to have to put up interest rates. You’re going to have to do it quickly to get ahead of the curve on inflation.” The Reserve Bank didn’t – they did the opposite. And that’s why our inflation has got a bit out of control. We’ve lagged the rest of the world. Surely that is negligent on the part of the Reserve Bank?

CHALMERS: Well, I think in fairness to the Reserve Bank – and they can defend their own decisions, as I said, but in fairness to the Reserve Bank – this inflation challenge that we’ve got right now – high and rising inflation – is not purely a consequence of decisions taken and the timing of the decisions taken by the Reserve Bank. There’s a domestic element around our supply chains and our labour shortages and other issues here in Australia. There’s a lot of international turbulence including Russia invading Ukraine but other challenges as well. And so our inflation challenge has a number of sources. And so I think it would be unfair to pin it all on the Reserve Bank.

But when it comes to their decisions, as I’ve said a couple of times, they’re capable of defending their own decisions. I’ve got a different job to do and I’m doing it.

KOCH: Okay. One of the drivers of inflation at the moment is those higher petrol prices. Are we being gouged at the moment by the oil companies and the petrol retailers?

CHALMERS: The servos shouldn’t be treating motorists as mugs. You know, that’s the big issue here. People are absolutely filthy that when the international wholesale price goes up those increases are passed on almost automatically and when the international price comes off a bit it takes longer for those savings to be passed on. So I call on all the servos to make sure they’re passing on those savings. People are doing it tough enough as it is. The price of groceries, the price of electricity - all going through the roof. Motorists need and deserve a bit of price relief at the pump which flows from this temporary relief or initial relief in the wholesale international price.

KOCH: Okay. You’re Treasurer. The excise cut is going to come off very shortly. Should you be regulating petrol prices? Should you be putting a maximum on petrol retailers on what they can charge us at the pump?

CHALMERS: I’m not considering a cap on petrol prices, Kochie. But I would be prepared to make sure that our competition and consumer watchdog has all the powers they need to make sure that these kinds of savings are passed on to people for all the reasons I’ve run through.

KOCH: Okay. Treasurer, appreciate your time. Thank you.

CHALMERS: Appreciate it, Kochie.