By Shane Wright and Millie Muroi
The Reserve Bank’s deputy governor has pushed back at critics who have accused the institution of sitting on its hands as inflation remains high, warning the degree of uncertainty over the economy made any change in interest rate levels challenging.
Speaking to the Economic Society of Australia’s Queensland branch in Brisbane, Andrew Hauser described those who claimed to be sure of the way forward as “false prophets”.
Reserve Bank deputy governor Andrew Hauser has warned against “false prophets” and their claims of economic certainty.
“When the stakes are so high, claiming supreme confidence or certainty over what is an intrinsically uncertain and ambiguous outlook is a dangerous game,” he said.
“At best, it needlessly weaponises an important but difficult process of discovery. At worst, it risks driving poor analysis and decision making that could harm the welfare of all Australians.”
The RBA held official interest rates steady at 4.35 per cent last week. Financial markets still expect the bank to cut rates by Christmas, but governor Michele Bullock has warned it was difficult to see such a move for at least six months.
Some economic commentators have warned the bank will continue to struggle to meet its 2-3 per cent inflation target unless it lifts the cash rate.
But Hauser said while a vibrant public debate about the economy was healthy, there seemed to be a strong degree of certainty among many commentators that was at odds with how the economy was performing.
“It is right to want to be confident that the central bank will bring inflation back to target and maintain full employment: that is the RBA’s mandate and we should be held to account for it,” he said.
“But the policy strategy required to deliver that outcome, and the economic judgements that inform it, simply cannot be stated with anything like the same degree of certainty. Those pretending otherwise are false prophets.”
Inflation in the June quarter reached 3.8 per cent, in line with the Reserve Bank’s forecasts.
But Hauser noted that while the bank’s forecast had been correct, inflation in previous quarters had been above expectations.
He said while there was a range of possible explanations, it appeared supply across the economy might have been a little weaker than anticipated.
Supply issues, such as those at the end of the COVID-19 pandemic, rarely respond to interest rate settings.
Hauser said there was uncertainty about other key economic factors, including how quickly the unemployment rate might change over coming months or how businesses might deal with capacity constraints.
Household spending, which is particularly important for inflation, could alter depending on what Australians did with their money as real incomes picked up.
“Consumption also depends on the extent to which households choose to spend or save these higher incomes – and we are much less confident in that judgement,” he said.
This week, figures on wage rises and the state of the jobs market will provide the bank with more insights into the strength of the overall economy.
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