Reserve Bank of Australia made an ‘unforgiveable mistake’ that is hurting Aussie households, Warren Hogan declares

The Reserve Bank of Australia’s “unforgiveable” mistake that is causing pain for households while inflation and interest rates remain elevated has been admonished by a leading economist.

Fresh inflation data is due on Wednesday and prices are anticipated to lift 3.7 per cent in the year to January.

It follows inflation jumping 3.8 per cent in the year to December, sitting well outside the Reserve Bank of Australia’s 2-3 per cent target band.

EQ Economics managing director Warren Hogan has repeatedly called for the RBA to hike the cash rate and told Business Now the central bank’s slower action when post-pandemic inflation was emerging in 2022 and 2021 hurt Australia’s economy.

“(The RBA) took a different strategy,” Mr Hogan said in reference to comparable economies that hiked rates quicker and more aggressively than the RBA.

“Which was not to raise rates as much as everyone else or what they would have done in the past.

“But then they still pre-emptively cut.”

The RBA delivered its first cut in February last year while trimmed mean inflation – the middle 70 per cent of price changes that cuts out volatile price changes – remained above three per cent.

“They cut rates before they got inflation back to target,” Mr Hogan said.

“They (thought) ‘let’s not take them up as much as usual and we’ll do a pre-emptive easing because we think we got on top of it’.

“That was the mistake they made and that for me is unforgivable because it was actually a problem of strategy.”

All eyes will be on the RBA on March 17 when it reveals whether it holds the cash rate or delivers back-to-back hikes.

Money markets are widely anticipating a hold, however, Wednesday’s inflation data will impact this.

The RBA lifted the cash rate earlier this month to 3.85 per cent after delivering three cuts in 2025.

Last year’s monetary easing followed the central bank holding the cash rate at 4.35 per cent for almost a year and a half to tackle post-pandemic inflation.

The price pressures lingered in the Australian economy and inflation’s resurgence forced the RBA to hike rates again.

Mr Hogan said a significantly higher cash rate will be necessary to stamp out this bout of inflation.

“We know that a 4.35 per cent cash rate didn’t work in 2024. The question is, would it work now? There’s no reason to think it would,” he said.

“We’ve got to at least reverse those cuts then maybe sit and watch and see what happens around the world.

“But I can’t see how we’re going to get inflation under control with a cash rate much below five (per cent) in the next little while, unless something terrible happens to the economy, which we can wait forever for that.”