RBA Trust in Inflation Fight Has Fallen as Rates Reach 18-Year High
Australians are less confident the Reserve Bank can bring inflation down within a year, raising a challenge for households already facing higher borrowing costs. Deputy Governor Andrew Hauser said trust in the RBA’s near-term ability to meet its monetary policy goals had “fallen materially”.
Hauser spoke in Canberra on Thursday, three days after the bank’s Monetary Policy Board lifted the cash rate by 0.25 percentage points to 4.85%, its highest level in 18 years. He said overall trust in the institution remained high and stable, even as confidence in its inflation-fighting capacity weakened.
Inflation weighs on confidence
The distinction matters for monetary policy. Hauser said public trust influences Australians’ inflation expectations, which can affect how households respond to price rises and the central bank’s efforts to contain them.
“Not all the news is bad,” he said. But inflation, which has stayed above central bank targets for years, has become a source of growing anger around the world. Australian consumer confidence is exceptionally weak, he said, and households rank inflation as their top economic concern.
The cumulative rise in prices since the COVID pandemic has far exceeded what people expected, Hauser said. That frustration comes as borrowers absorb the effects of rate increases intended to slow inflation. He acknowledged that people with mortgages had considerably less trust in the bank than Australians without one.
Trust is under pressure. Hauser said the bank did not want Australians to lose confidence in it as an institution, but economic conditions were testing that confidence. Monetary policy takes time to work, he said, and “pain often precedes gain”.
Explaining difficult decisions
Hauser also argued that the RBA needs the public to understand why it makes decisions that can hurt in the short term. He invoked former Federal Reserve chairman William McChesney Martin’s description of a central bank as a chaperone removing the punch bowl just as a party warms up.
Removing that punch bowl rarely wins immediate popularity, Hauser said. The question, he added, is whether people can see why a difficult choice is necessary even when its effects are unwelcome.
He rejected suggestions that his public comments before the rate decision had sought to pressure the board. Hauser said he was not trying to steer markets or constrain the board, and described the divided decision as evidence of lively debate.
The RBA now faces the task of maintaining public confidence while inflation remains above target and the effects of higher rates continue to reach households. Hauser’s warning puts attention on whether trust in the bank’s ability to bring prices under control can recover over the next 12 months.
