In breach of all precedent and protocol,it was the assistant treasurer,who sits in the portfolio with responsibility for the Reserve Bank Act,who came closest to telling the independent central bank how to do its job. Stephen Jones told ABC TV on Tuesday:“We’re hoping that we don’t see further interest rate increases.” The opposition’s Senate leader,Simon Birmingham,called for Jones to be sacked for undermining the bank’s independence.

The treasurer himself,the person who appoints the governor,pointedly declined to endorse Lowe.

The truth is that the greatest danger to the Albanese government is the state of the economy. Growth is slowing,unemployment is rising and the cost of living is soaring. The only thing preventing this from being a full-blown political emergency is the fact that the next election isn’t due till 2025.

As Labor’s national secretary,Paul Erickson,told the Labor caucus in its first meeting for the year,the cost of living is the greatest single worry on voters’ minds:“You must look like you are responding to this first and foremost. This is where people are at,and you need to be aware of it. This is where people expect you to be.”

So by the time Lowe appeared before a Senate committee on Wednesday,there was a feverish expectation of a show trial. But everyone who expected Lowe to be abashed or apologetic was disappointed. The governor was calm and firm.

The first tough question came from McKim:“Can you explain to the renters and mortgage holders of Australia why you still deserve to hold your job?” Lowe didn’t take a backward step:“I have a seven-year term as the governor of the bank and I intend to serve[it] out. That said,it’s an important job that comes with public accountability as part of the process,but I intend to serve out that term.

“Decisions that the Reserve Bank may have made are by a board of nine people. It’s not just me. We make them collectively and collaboratively,and the board has made these decisions and I think it would be a very bad outcome for the board to have to resign. It’s a collective responsibility.”

He explained why the bank had raised rates and would continue to:“We want to get inflation down because it’s dangerous. It’s corrosive,it hurts people. It damages income inequality. And if it stays high,it leads to higher interest rates,and,and more unemployment,so we want to get inflation down,but we also want to preserve the gains in employment that we’ve made.”

It was a “narrow path” for the bank to crimp inflation while averting recession but Lowe said it could be walked successfully.

But Lowe cut to the heart of the political theatrics of interest rates. He explained he was not complaining,that he had a job to do:“That’s why the central bank is independent in its decision-making from the political process. It’s easier for me to do unpopular things than it is for maybe some of you.”

Exposed for all to see. I do the unpopular work because governments have shown that they can’t. Or,as Lowe has put it to colleagues,“Just imagine the challenges for the politicians if they had to make the decisions on interest rates.”

We don’t have to imagine because history is replete with case studies. It’s popular to cut interest rates but unpopular to raise them. When politicians control rates,they allow them to run too low for too long and disaster follows. Governments around the world were wise to disavow this responsibility.

Like Odysseus instructing his crew to lash him to the mast so he’d be impervious to the seductive but ruinous song of the sirens,governments agreed to tie their own hands for the common good.

So when Lowe had finished his performance before the Senate economics committee,Jim Chalmers phoned him from his office for a chat. The treasurer had been impressed with his performance.

There have been casual claims that the relationship had broken down. It’s true that Prime Minister Anthony Albanese was careful to not have any contact with Lowe this week. It suits him to keep his distance. But the treasurer and the governor have a good relationship and that hasn’t changed. The two men will spend three days with each other in India together next week at a G20 meeting of finance and central bank heads in Bangalore.

Such relationships aren’t always positive. The ill-fated British chancellor Kwasi Kwarteng and the governor of the Bank of England,Andrew Bailey,modelled a bad relationship last year at an International Monetary Fund meeting in Washington DC.Kwarteng had delivered a disastrous mini-budget without consulting Bailey. The prime ministership of Liz Truss ultimately would be a victim of the market carnage that followed.

When Kwarteng spoke at the IMF meeting in front of the other countries’ delegations,Bailey ostentatiously turned his back;when Bailey spoke,Kwarteng buried his head in his papers. At times,one would roll his eyes when the other spoke. It was an appalling spectacle. Chalmers and Lowe laughed about it afterwards. The Australians agreed they’d never allow their relationship to descend to that.

Yet the essential political fact remains that it suits the Albanese government for Lowe to take the blame for the pain of rising rates. And it’s going to get worse.Some 800,000 mortgage holders will migrate from loans fixed at 2 per cent to rates of 6 per cent or so as the year unfolds. The repayments on a million-dollar loan will soar by around $20,000 a year.

The temptation to scapegoat Lowe will be powerful. But the governor won’t simply accept his place as a punching bag. He’s told colleagues that “if they keep up the bashing,we’ll have to find a way to respond to that to protect the bank”.

Lowe made it easier for them,of course. In 2021,with the economy struck down by the pandemic and no vaccine in view,he signalled that the bank was likely to keep the official rate at a record low 0.1 per cent until 2024 to encourage investment.

Australia’s central bank wasn’t the only one with this expectation – the US,Sweden and Canada shared it – but it was the most explicit and outspoken about it. So his critics can hold Lowe responsible for not just the mortgage shock that’s to come,but for misleading them with the suddenness of it.

The man who crushed US inflation in the late 20th century was Paul Volcker. When he was eventually replaced as chair of the US Federal Reserve,he didn’t have contact with his successor,Alan Greenspan,until the first time Greenspan raised interest rates. “Congratulations,Alan,you’ve just become a central banker,” Volcker said.

Raising rates is hard and unpopular. Lowe won’t be deterred by criticism. Nor does he presently intend to meekly surrender the post when his term expires. But it will get very tough. The politicians would rather the paparazzi camp outside Lowe’s home,not theirs.

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