RBA Deputy Governor Andrew Hauser struck a hawkish tone at Wednesday’s Citi Australia & New Zealand Investment Conference, describing the inflation outlook as “materially worse” than the Bank’s August projections. He warned that policymakers face difficult decisions against a backdrop of higher oil prices amid escalating Middle East tensions, strong technology-related investment and persistent domestic capacity constraints. This setting has increased upside inflation risks, while businesses increasingly appear to regard inflation of 3–3.5% as normal, which is a shift upwards from historical standards. Although slowing household consumption and a softening labour market point to weaker economic momentum, Hauser’s comments suggest the RBA remains concerned that persistent inflation could become entrenched, requiring a more forceful policy response.
Markets have responded by significantly repricing the outlook for monetary policy. The implied probability of a 25 basis point rate rise at the 3 November meeting has increased above 60%, from around 27% before Hauser’s remarks, which would take the cash rate to 4.85%. Markets are now fully pricing a further increase by February. Next week’s September-quarter CPI release will be pivotal, with an upside surprise likely to reinforce expectations of a November increase. While the RBA has not committed to further tightening, Hauser’s assessment materially increases the risk of another hike, notwithstanding softer domestic activity.
A notable feature of Hauser’s remarks was the emphasis on the broader transmission of monetary policy beyond mortgage holders and higher borrowing costs. He highlighted the influence of interest rates on the exchange rate, asset prices and incentives to save and borrow. Higher rates can support the Australian dollar, making imports cheaper and easing tradable inflation, but an appreciating currency can also weigh on export competitiveness, tourism and other traded-sector activity.
This messaging shift has featured across several recent appearances by RBA officials, reinforcing that monetary policy affects the economy through multiple channels, with consequences for businesses, consumers and economic activity more broadly. The RBA appears keen to ensure the public understands that the costs and benefits of monetary tightening extend well beyond households with mortgages.
Overall, Hauser’s comments reinforce the increasingly difficult trade-off facing the RBA: further tightening risks compounding weakness in interest-sensitive sectors, while holding rates steady risks allowing inflation to remain elevated and expectations to become entrenched. With markets assigning greater weight to a November hike and pricing further tightening into early 2027, the September-quarter inflation data will be critical in determining whether the RBA acts next month or delays its next move.
Inflation will remain an issue with the elevated levels of government spending. Treasury expects government spending to reach 26.9% of GDP in 2025–26, the highest outside COVID since 1986. The RBA expects government demand to keep growing faster than the economy. Its May 2026 Statement on Monetary Policy forecasts public demand growth of 3.7% in the year to June 2026 and 3.1% to December 2026. GDP growth is forecast at only about 1.3–1.4% from late 2026. Prudent fiscal policy is an element that is currently lacking in the Australian Economy. A shift will be required in fiscal policy to reduce inflation and, importantly, reduce government debt, both state and federal debt.
Source: Reserve Bank of Australia, Fireside Chat by Andrew Hauser, Deputy Governor at Citi’s Australia & New Zealand Investment Conference, Sydney, October 2026.
.