Received

The Reserve Bank governor says mortgage holders and renters are hurting immensely from the rising cost of living and higher interest rates.

Speaking at a parliamentary committee hearing in Canberra, Philip Lowe said people were writing to him about their personal circumstances.

"I read those letters and hear those stories with a very heavy heart," he said.

"Personally ... I find it disturbing."

But he said higher interest rates were necessary to rein in inflation.

"If we don't get on top of inflation it means even higher interest rates and more unemployment," he said.

Dr Lowe also commented on the profits Australia's big banks were making during the policy tightening period.

"I know it's hard for people to accept when they're suffering with problems with their personal finances, but the country is better off having strong, resilient banks that can provide the financial services that we need," he said.

Responding to criticism of a private briefing he gave a group of bankers on interest rate hikes, Dr Lowe said he was revising his timetable of public speaking arrangements based on feedback that he was "maybe talking too much".

"And it is possible to talk too much. I have been conscious of that," he said.

The central bank has faced criticism about its interest rate predictions and how these forecasts have been communicated.

Bernie Fraser, who led the RBA for seven years before his tenure ended in 1996, said it would be better if the central bank flagged the possibility of further rises while it watched the impact of existing interest rate hikes, rather than giving firm predictions.

"The market has sort of jumped on and interpreted this as the likelihood or near-certainty of another three or four increases to interest rates," he told ABC Radio on Wednesday.

"And that's unhelpful and doesn't provide the kind of confidence that the bank should be striving to enlist with the community."

Dr Lowe also denied the independence of the institution was under attack from government ministers.

"It's not affecting our decision-making, let me assure you that," he said.

"The decisions are based on the data of the analysis, and the facts."

He said there was no pressure from the treasurer or other ministers to stop increasing the cash rate.

"It's noisy but raising interest rates is always unpopular and it affects the whole community and the representatives of the community understandably will sometimes want to talk about that," he said.

"But we keep doing our job and our job is to make sure inflation comes down and hopefully preserve the gains in unemployment that we have made."

Treasury secretary Steven Kennedy, who has a seat on the RBA board, said criticisms of interest rate decisions should be applied to all board members.

"The criticisms or otherwise of the interest rate decisions apply to the whole board, not just the governor because it's the board that makes the decisions," he told a parliamentary committee on Wednesday.

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The Reserve Bank's credibility has been damaged by flawed interest rate predictions while the central bank continues to provide "unhelpful" pointers to future increases, its former head says.

The scathing assessment from Bernie Fraser, who led the RBA for seven years before his tenure ended in 1996, comes as current governor Philip Lowe prepares to face a parliamentary grilling on Wednesday following a series of rate hikes.

Last week, the central bank lifted interest rates to 3.35 per cent, the ninth rise in the current cycle.

It has indicated that further rate rises will be needed to rein in spiralling inflation, which grew by 7.8 per cent annually in the December quarter.

But Mr Fraser said it would be better if the RBA flagged the possibility of further rises while watching for the impact of the existing interest rate hikes rather than giving strong predictions.

"The market has sort of jumped on and interpreted this as the likelihood or near-certainty of another three or four increases to interest rates," he told ABC radio on Wednesday.

"And that's unhelpful and doesn't provide the kind of confidence that the bank should be striving to enlist with the community."

Treasury secretary Steven Kennedy, who has a seat on the RBA board, said criticisms of interest rate decisions should be applied to all board members.

"The criticisms or otherwise of the interest rate decisions apply to the whole board, not just the governor, because it's the board that makes the decisions," he told a parliamentary committee on Wednesday.

Dr Kennedy said he would not speculate on the trajectory for future monetary policy decisions and the governor was responsible for providing communications on the matter.

The nine interest rate rises have been driving up home loan repayments, with the federal government concerned about the 800,000 mortgage holders on fixed rates yet to feel the full brunt of increasing rates.

Assistant Treasurer Stephen Jones said households wanted to know the pain they were feeling was going to have an end, as he rejected coalition criticism he had undermined the central bank's independence by making public comments on interest rates.

"I'm unequivocally on the side of households who are doing it tough and on the side of small businesses who are doing tough," he told Sky News.

The future of the Reserve Bank's leadership has also come under question ahead of the treasurer's decision on whether to extend his term in the second half of 2023.

Several MPs, including Labor backbenchers, have questioned Dr Lowe's tenure based on the RBA's predictions issued during the COVID-19 pandemic that interest rates would not rise until 2024.

Treasurer Jim Chalmers has refused to comment on Dr Lowe's future as governor.

Mr Fraser said the Reserve Bank had built up substantial trust and credibility with the Australian public during the past three decades, but the "miscalculation or misjudgement" on the forecast had jeopardised that reputation.

"Those people who are acting on that forecast have been severely burned ... and that has ... damaged credibility," he said.

"That is a worry because the independence of the central bank and the credibility of the central bank is absolutely essential."

The RBA is also subject to an independent inquiry, with the findings due next month.

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Reserve Bank governor Philip Lowe says interest rates are a more nimble tool for managing demand in the economy compared to government policy.

Speaking at a parliament committee hearing in Canberra, Dr Lowe said aggregate demand growth was too strong and that interest rates are a "blunt" but "nimble" policy tool to bring inflation under control.

"The Reserve Bank board meets every month and we can take decisions every month based on the flow of information," he said.

"The received wisdom, over recent time, is that fiscal policy, most of the time, is not as effective at managing the cycle."

Dr Lowe said policy interventions must be debated in parliament, which takes time.

"Fiscal policy, most the time, should be dealing with the structural issues and structural budget position, and - except for in extraordinary times - it's not the best tool to use to manage aggregate demand," he said.

"Interest rates, for all the faults and all the problems, we have is the one nimble tool."

His comments follow another 25 basis point interest rate hike last week, taking the cash rate to 3.35 per cent.

The RBA has indicated that further rate rises will be needed to rein in spiralling inflation, which grew by 7.8 per cent annually in the December quarter.

The former head of the central bank has criticised the credibility of the institution following some flawed interest rate predictions.

Bernie Fraser, who led the RBA for seven years before his tenure ended in 1996, said it would be better if the central bank flagged the possibility of further rises while watching for the impact of the existing interest rate hikes rather than giving firm predictions.

"The market has sort of jumped on and interpreted this as the likelihood or near-certainty of another three or four increases to interest rates," he told ABC radio on Wednesday.

"And that's unhelpful and doesn't provide the kind of confidence that the bank should be striving to enlist with the community."

Treasury secretary Steven Kennedy, who has a seat on the RBA board, said criticisms of interest rate decisions should be applied to all board members.

"The criticisms or otherwise of the interest rate decisions apply to the whole board, not just the governor, because it's the board that makes the decisions," he told a parliamentary committee on Wednesday.

Dr Kennedy said he would not speculate on the trajectory for future monetary policy decisions and the governor was responsible for providing communications on the matter.

The future of the Reserve Bank's leadership has also come under question ahead of the treasurer's decision on whether to extend his term in the second half of 2023.

Several MPs, including Labor backbenchers, have questioned Dr Lowe's tenure based on the RBA's predictions issued during the COVID-19 pandemic.

Treasurer Jim Chalmers has refused to comment on Dr Lowe's future as governor.

Mr Fraser said the Reserve Bank had built up substantial trust and credibility with the Australian public during the past three decades, but the "miscalculation or misjudgement" on the forecast had jeopardised that reputation.

"Those people who are acting on that forecast have been severely burned ... and that has ... damaged credibility," he said.

"That is a worry because the independence of the central bank and the credibility of the central bank is absolutely essential."

The RBA is also subject to an independent inquiry, with the findings due next month.

© AAP 2023