The Reserve Bank of Australia\u2019s \u201cunforgiveable\u201d mistake that is causing pain for households while inflation and interest rates remain elevated has been admonished by a leading economist.<\/p>\n
Fresh inflation data is due on Wednesday and prices are anticipated to lift 3.7 per cent in the year to January.<\/p>\n
It follows inflation jumping 3.8 per cent in the year to December, sitting well outside the Reserve Bank of Australia\u2019s 2-3 per cent target band.<\/p>\n
EQ Economics managing director Warren Hogan has repeatedly called for the RBA to hike the cash rate and told Business Now the central bank\u2019s slower action when post-pandemic inflation was emerging in 2022 and 2021 hurt Australia\u2019s economy.<\/p>\n
\u201c(The RBA) took a different strategy,\u201d Mr Hogan said in reference to comparable economies that hiked rates quicker and more aggressively than the RBA.<\/p>\n
\u201cWhich was not to raise rates as much as everyone else or what they would have done in the past.<\/p>\n
\u201cBut then they still pre-emptively cut.\u201d<\/p>\n
The RBA delivered its first cut in February last year while trimmed mean inflation \u2013 the middle 70 per cent of price changes that cuts out volatile price changes \u2013 remained above three per cent.<\/p>\n
\u201cThey cut rates before they got inflation back to target,\u201d Mr Hogan said.<\/p>\n
\u201cThey (thought) \u2018let’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\u2019.<\/p>\n
\u201cThat was the mistake they made and that for me is unforgivable because it was actually a problem of strategy.\u201d<\/p>\n
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.<\/p>\n
Money markets are widely anticipating a hold, however, Wednesday\u2019s inflation data will impact this.<\/p>\n
The RBA lifted the cash rate earlier this month to 3.85 per cent after delivering three cuts in 2025.<\/p>\n
Last year\u2019s 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.<\/p>\n
The price pressures lingered in the Australian economy and inflation\u2019s resurgence forced the RBA to hike rates again.<\/p>\n
Mr Hogan said a significantly higher cash rate will be necessary to stamp out this bout of inflation.<\/p>\n
\u201cWe 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,\u201d he said.<\/p>\n
\u201cWe’ve got to at least reverse those cuts then maybe sit and watch and see what happens around the world.<\/p>\n
\u201cBut 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.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The Reserve Bank of Australia\u2019s \u201cunforgiveable\u201d mistake that is causing pain for households while inflation and interest rates…\n","protected":false},"author":2,"featured_media":313435,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[72,4505,943,113,25379,61,1095,4751,60,16487,30473,23260,146602],"class_list":{"0":"post-313434","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-central-bank","10":"tag-cost-of-living","11":"tag-economy","12":"tag-households","13":"tag-ie","14":"tag-inflation","15":"tag-interest-rate","16":"tag-ireland","17":"tag-mortgages","18":"tag-rba","19":"tag-reserve-bank-of-australia","20":"tag-warren-hogan"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/313434","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=313434"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/313434\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/313435"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=313434"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=313434"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=313434"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}