Criticism easy in hindsight: RBA deputy governor Andrew Hauser defends interest rate hikes

Reserve Bank of Australia deputy governor Andrew Hauser has defended the institution’s approach to interest rates after it fully reversed last year’s rate cuts, saying criticism can easily be made with hindsight.

Last month’s 0.25 percentage point rate hike reversed the RBA’s three cuts last year, taking the cash rate back to 4.35 per cent for the first time since February 2025.

Speaking at an economic event in Sydney on Friday, Mr Hauser justified the rate cuts by pointing to economic conditions in 2025.

“We had very slow growth coming into the year and inflation was moving down fairly consistently into the target band,” he said.

“We also . . . had (US President Donald Trump’s) Liberation Day and the tariff changes in the world economy that everyone felt, including us, will probably lead to a slowdown in global growth.

“Those things combined led us to conclude on the basis of our forecasts — and indeed those forecasts were similar to most other forecasters as well — that there was room to loosen interest rates a little to support employment and to ensure that inflation still came down to target.”

Mr Hauser said inflation had since picked up again and “the forecast that Liberation Day would stop the global economy dead, turned out to be dead wrong”.

Asked if Australia had to change the way it measured productivity or make certain it puts more priority onto those productive jobs, Mr Hauser said: “It’s a fallacy to think that service is necessarily low productivity.”

“There are many measurement challenges. You think about (artificial intelligence), for example, what’s the product, what’s the price? (It’s) harder to measure that than it is if you’re putting a car out or something,” he said.

Mr Hauser’s comments came a day after RBA governor Michele Bullock warned Australia’s inability to produce the goods and services the economy demands risked causing stagflation — when both inflation and unemployment are high at the same time.

Australia’s productivity, based on economic output for every hour worked, plunged by 0.6 per cent in the March quarter — the worst quarterly result since mid-2024.

The latest Australian Bureau of Statistics data showed yearly headline inflation fell from 4.6 per cent in March to 4.2 per cent in April.

This was due to the Federal Government temporarily halving the fuel excise, partly easing some of the inflationary pressures.

But trimmed mean inflation — which the RBA watches because it strips out volatile and seasonal items — rose to 3.4 per cent for the 12 months to April Both of these figures are above the RBA’s 2-3 per cent target range.

Ms Bullock noted Treasury and the RBA’s had differing forecasts on inflation and economic growth.

Mr Hauser on Friday downplayed the disparity between growth forecasts set by Treasury and those of the RBA.

He said the RBA’s forecast for growth was “a bit weaker” than Treasury’s, but not “substantially weaker, if I’m terribly honest”.

“Look on unemployment and inflation, our forecasts are within a whisker of each other,” he said.