Australian Politics Why does the RBA only have one blunt tool? We ask the deputy governor
Feb 24, 2026
Andrew Hauser, deputy governor of the Reserve Bank of Australia who helps shape monetary policy, explains why rates moved from cuts to hikes after 2025 surprises. He talks about where stronger demand came from and whether that means more rate rises. He addresses political criticism, labor market signals, housing and inequality, and why interest rates remain the main blunt tool for policy.
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Three Surprises That Reversed The Soft Landing
- Three unexpected factors pushed inflation back up: a stronger-than-feared world economy, easier financial conditions beyond the cash rate, and a faster pickup in private-sector demand.
- Andrew Hauser cites AI-driven global growth, strong credit and lending in Australia, plus households/businesses spending more than forecasts as the mechanism.
RBA Won't Police Fiscal Choices
- The RBA refuses to advise governments on spending choices and treats public and private demand equally when assessing inflation.
- Hauser says a dollar of public-sector demand contributes to inflation the same as a private dollar, so the RBA must react via monetary policy.
Low Capacity Makes Small Demand Shifts Inflational
- Australia's low capacity growth (sustainable growth ~2%) means even modest demand increases can spark inflation.
- Hauser stresses productivity and capacity are the core limits: without higher trend growth, demand must be restrained to hold inflation.