In Lowe’s defence, at the end of last year, most economists agreed with him that the recovery from the pandemic recession would take years and it was far too early to raise rates.

Indeed, many other central banks made the same mistake. They are now playing catch-up by raising rates to control inflation.

Global stock markets tumbled on Wednesday and the ASX 200 dropped about 2.5 per cent because of US data showing that inflation was still far too high at 8.3 per cent a year. Markets are frightened that the US central bank, the Federal Reserve, will have to lift rates much higher to curb inflation.

While the review into the RBA can look at what caused these mistakes, critics of Lowe’s current policy of raising interest rates are ill-informed.

The greatest threat to the Australian economy is not higher rates but inflation, which Lowe last week described as a “scourge”.

Loading

Inflation hits workers on low incomes hardest because they have less bargaining power and it makes businesses reluctant to invest.

Long experience has shown that tighter monetary policy operated by an independent central bank is the best antidote.

The root cause of inflation is when too much money is chasing too few goods.

High interest rates break the cycle by encouraging saving and discouraging borrowing.

The challenge for Lowe will be to achieve a “soft landing” where he slows the economy and inflation without crashing.

For the moment, the chances are still good that he can pull this off. With the economy growing at 3.9 per cent a year and unemployment at only 3.4 per cent, households and businesses should be able to cope with his medicine. Even after the 2.25 per cent rise in the official cash rate since April, very few people are falling behind on their mortgages.

Lowe was not appointed to please everyone all the time. He should stay and stick to his job of keeping the Australian economy growing steadily over the long term.

Bevan Shields sends an exclusive newsletter to subscribers each week. Sign up to receive his Note from the Editor.