Radio National Breakfast RBA to decide on interest rates as inflation remains stubborn, Middle East war continues
Mar 16, 2026
Warwick McKibbin, economist and former RBA board member now at the Peterson Institute and ANU, discusses interest rates, inflation and policy choices. He argues rates may need to rise to rein in inflation. He weighs domestic policy priorities against Middle East uncertainty. He draws historical parallels and stresses transparency in central bank communication.
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Domestic Conditions Justify Rate Hike
- The domestic economy requires higher interest rates because inflation and inflation expectations remain elevated.
- Warwick McKibbin cites unemployment at 4.1% (full employment) and recent shocks that will push inflation up as reasons to raise rates to at least 4.1%.
Prioritise Domestic Fundamentals Over Overseas Shocks
- The RBA must prioritise domestic fundamentals first and then overlay international uncertainty like the Middle East war.
- McKibbin says if domestic data demand tightening, the board should raise rates even amid uncertain overseas shocks.
RBA Raised Rates Before the GFC And It Helped
- McKibbin recalls the 2006–07 pre‑GFC period when the RBA raised rates despite a looming global shock.
- He notes that raising then left Australia well placed to cut rates later without a recession.