Reserve Bank of Australia Deputy Governor Andrew Hauser Discusses Conditional Nature of Economic Forecasts

In a recent address at a luncheon in Sydney, Andrew Hauser, the Deputy Governor of the Reserve Bank of Australia (RBA), emphasized the importance of central banks accurately forecasting inflation and economic growth to inform effective policy-making. He cautioned that while interest rate expectations are valuable, they should be understood as conditional predictions rather than certainties.

Hauser articulated that the primary responsibility of central banks is to communicate their economic outlook and the potential responses to various economic scenarios. He highlighted the significant impact that RBA guidance has on market traders, underscoring the critical role of central bank communication in shaping economic expectations.

During his speech, Hauser remarked, "Inflation is deeply unfair," pointing out its disproportionate effects on households, which often overshadow the implications of rising interest rates. He noted that while global factors primarily drive inflationary pressures, he refrained from discussing the influence of oligopoly power in sectors such as supermarkets and aviation in Australia.

The Deputy Governor identified several key issues affecting Australia's economic landscape, including government spending, the economic activity of China, housing costs, and consumer spending. He explained that these factors, along with current employment levels, are pivotal in driving the Australian economy forward.

Hauser reiterated that China's economic performance and housing affordability are crucial elements influencing Australia's economic health. However, he also warned of external risks, particularly those arising from the Middle East and fluctuating oil prices, stating, "They matter to us because we’re an open country."

As the RBA continues its efforts to combat inflation, Hauser acknowledged that significant work remains. "It’s a big job, and we’re not done yet," he affirmed, emphasizing the ongoing challenges ahead.

Additionally, he highlighted the necessity of incorporating climate change risks into the bank's broader mandate, reflecting a commitment to addressing long-term economic sustainability.

Hauser expressed his support for proposed reforms within the RBA, particularly regarding changes to the bank's board structure, while noting that such decisions ultimately rest with the government. He concluded by reaffirming the RBA's critical role in setting interest rates and guiding the Australian economy.