Can the RBA fix the economy? Why monetary policy might not be the answer

Hi, welcome to the first edition of the Finance Wrap-Up newsletter. I'm Misa Han , finance news editor for LinkedIn News Australia.

This week, we're discussing the fallout from central banks' war on inflation. People are asking: Is the cost of inflation targeting too high? And which is worse — penny pinching at the supermarket or bank failures?

Also in this edition, we interview Tim Loh , Assistant Commissioner at the Australian Taxation Office, who went from being afraid of speaking up at meetings to appearing in front of millions on national TV.

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The Big Read 💱

The Reserve Bank of Australia is under pressure. After 10 rate rises, households are suffering. There have been calls for Governor Philip Lowe to resign. An independent panel is reviewing the RBA for the first time in 30 years, with a report due to be handed down at the end of this week.

Despite the fast rate hikes, central banks are failing to take the heat out of the economy. Yes, inflation has dipped to 6.8%. Retail spending is slower. But unemployment is back at 3.5%, a record low, and business confidence still remains strong.

All of this raises the question: is monetary policy really the best way to fix the economy?

Insolvency expert Brendan Giles says central banks are not to blame for the current crisis.

Instead, the blame should be on governments who left central banks to fight inflation on their own, he says.

He writes on LinkedIn: "Governments, who arguably have the strongest tools to fight inflation by increasing income taxes and cutting spending, have done nothing, or in several countries, actively made the problem worse with increased spending or tax cuts."

Financial consultant Nicholas Allan agrees.

He says governments around the world are overspending, while central banks are trying to cool economies down — making the whole exercise counterproductive.

He writes on LinkedIn: "Imagine the stress you'd put on a car's engine driving everywhere with the accelerator and brakes engaged at the same time."

Financial educator Lacey Filipich says monetary policy has outlived its usefulness.

She writes on LinkedIn: "It's all the RBA has in their toolkit. Other, more useful tools are in the hands of others — governments especially in this case."

But the RBA is showing no signs of giving up its main tool.

In a recent speech, RBA Assistant Governor Christopher Kent acknowledged monetary policy has not worked as quickly this time, thanks to the record household savings and fixed-rate mortgages.

But he said it has still been effective in reducing demand for housing loans, encouraging savings, lowering asset prices and propping up the Aussie dollar — which together slowed the growth of aggregate demand and brought down inflation.

But at what point is the collateral damage too great?

This month, three banks collapsed and two Swiss banks were forced to merge following a liquidity crisis — the makings of one of the fastest rate rises in history.

As Georgia Barkell , a venture capital executive who has seen the rate rises' impact on the tech sector, puts it in a LinkedIn post: "These huge sharp rate increases affect every aspect of the economy, from people’s mortgages more than doubling as low fixed rates mature to the collapse of the established financial institutions such as SVB and Signature Bank because the metrics of funding significantly change and the balance sheet no longer stacks up."

And, says the former banker, that is too high a price to pay.

She asks: "Would you rather choose cheaper apples at the supermarket or be forced into paying double your mortgage within months? Everyone is going to suffer; which big banks and corporates will be the next to fail and send shockwaves through the economy?"

💬 Do you think the RBA has the right tool to help fix the economy? Or do you think more fiscal intervention is needed? Share your thoughts in comments below.

The Guest Speaker 🎤

Tim Loh is the Assistant Commissioner at the Australian Taxation Office. He regularly posts about tax literacy, careers in finance and public speaking. As graduate programs open up, he shares practical tips on how to prepare for a career in accounting and finance.

Q. What are some of the essential skills for finance graduates starting their career?

A. As a graduate you typically enter the program with a cohort of other graduates. Invest in this network and also connect with people at all levels in the organisation. Bring a curiosity mindset to the people you are working with, so you can discover who they really are and tap into their wisdom.

It is also crucial that you continue to develop your data literacy skills to complement the technical skills in your finance career.

Q. You recently shared practical tips for graduate job applications and one of the tips was to look for representation at the senior level. Why is this important? And what can companies do to make sure culturally diverse professionals have an equal access to career progression?

A. I’m going to sound like a broken record, but “representation matters".

It is important to see that representation when you first start out, because it gives you a roadmap towards how you might get to the most senior roles in that organisation. If you don’t see the representation at the top, even if you are exceptional, it’s going to be harder for your career to progress past middle management.

As a parent, I’m cognisant of ensuring there is a level playing field for the next generation. If organisations want to get serious about cultural diversity in senior leadership roles you need data on it – it is the bedrock of decision making. Once you have the data, you can work out on the best way to execute on the 'how'. Without it, you are just throwing darts at a dartboard and that is never a great strategy for an organisation.

Q. You often share tips on public speaking and media appearances. Any advice for people who want to work on these skills?

A. I have been terrified with public speaking since primary school and even speaking in meetings. The mere thought of it would have my heart pounding out of my chest and I would try to find ways to avoid it.

As the ATO’s Tax Time spokesperson, I have worked on some techniques to help deal with the anxiety. Before the public speaking engagement, I like to practise my content five times speaking out aloud to myself. It annoys everyone at home, but it is important to get the words out of your head.

After the public speaking engagement, I don’t like reviewing the footage, but it’s important to do it. Debrief with your team and understand what went well and what didn’t go so well. Most importantly, recognise your courage for giving it a go!

💬 What tips do you have for graduates who are starting their careers in finance? Share your comments below.

💡 Follow Tim Loh on LinkedIn for insights on tax literacy and careers in finance.

News You May Have Missed 📣

The banking crisis spreads. This month's banking crisis — which began with the collapse of Silicon Valley Bank and escalated with the forced marriage between Swiss banks UBS and Credit Suisse — had the financial markets rattled this month. ANZ's CEO Shayne Elliott says this will further restrict funding availabilities for households and businesses, with those who are over-leveraged at most risk.

How to hire more female fund managers. Have you ever met a female fund manager? You may never have, because only 10% of Australia-based portfolio managers are women. Jenny Johnson , CEO of global asset manager Franklin Templeton, says poaching more women from rivals is not the answer and instead proposes three ways of improving gender diversity in the industry.

Before You Go 🐶

Beat the competition paws down? Hardware giant Bunnings' foray into the pet category is a "sure bet", marketing professor Jana Bowden writes on LinkedIn. Two-thirds of Australian households own pets and the rise of 'pet-parenting' among gen Z and gen Y — where pets are treated as part of the family — makes consumers more likely to pay a premium for pet wellness products, she says.

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