Transcript Interview with Guardian’s Australian Politics Podcast with Patrick Commins and Luca Ittimani

Andrew Hauser, thank you very much for joining us on the Australian politics podcast.

Thank you.

It’s a bit unusual. We’re straying a little bit with the Australia politics podcast by having you on, Deputy Governor of the RBA, and we’re really appreciative.

Why is it a stray?

Well normally we have politicians.

Ah.

Yes, yes. The only way is up. That’s what I’d say.

I’m sorry, it’s central bankers’ job to be boring and politicians not to be. So bad luck.

Well, we’ll get somewhere in between I reckon. So just to start off with, I mean how long have you been in the job at the RBA and how’s your experience been as a central banker in such a high profile role in Australia? You may have noticed that Australians get quite worked up about interest rates. You may or may not have noticed. So what’s your experience been like?

Yeah, look, I’ve been here two years now and I always say to people it’s an enormous privilege. It’s actually quite rare for foreigners to be given the opportunity to set interest rates on behalf of another country. I obviously worked at the Bank of England for Mark Carney who perhaps is the most high profile example of that. But you can only be extremely humble when you get that invitation. I have tried to respond to that by getting to learn about Australia. I love Australia. My sister lives here, has lived here for 20 years or more. My wife’s sister lived here beforehand and therefore been many times and one of the first things I knew I had to do when I got here was to get out and about. So I’ve travelled right around the country, been to visit community organisations, businesses, you know, local officials to see how the economy really works and that’s just been an enormous eye opener. The UK has its own challenges at the moment, as you’ve probably been reading about and certainly been writing about. So it’s a breath of fresh air in some ways to come to another country. But as I say, the overarching sense is one of humbleness. I mean you mentioned the public discourse. I think that’s wholly positive. I’ll be honest with you. I think central bankers, I joined central banking in the early 90s and the job of the head of press at the Bank of England, proudly said, was to keep the press out of – keep the bank out of the press. That was his job. And that’s entirely wrong because we’re given big and important responsibilities which have effects on everybody’s lives. We do it, I hope, for the public good, but in return for that, we must be held accountable. And Australia specialises, I think it’s fair to say – I’m sure, Patrick, you’re part of that approach in holding people like me to account, sometimes robustly – but I would say to people, if there’s one country you could come from where the Australian discourse and press don’t actually seem any more robust than you’re used to, it’s the UK, and I came through many crises, actually, that the Bank of England was involved, most recently the LDI crisis involving Liz Truss as well. And, you know, the Bank of England was heavily held to account during that period. And I say I welcome it. And if it’s sometimes a bit lively, that comes with the territory. Important job to do and we deserve to be held to account.

Well, we might come back later to, you know, the role of politics and pressures from politicians on the central bank. I’m sure we’ll have some time to go back to that later. But, you know, let’s go back to – let’s go to brass tacks, then. I mean, the RBA, you cut rates three times last year in the space of six months, and then it looked like inflation was under control and got down just below 2 per cent. Fast forward six months, we’ve got a rate hike, we’ve got inflation running at nearly 4 per cent. So can you tell us a little bit what happened? It’s obviously a surprise, but did you get it very wrong? Was there something that came out of nowhere? How do we go from having inflation under control to having inflation at nearly 4 per cent? And the RBA hiking rates?

Yeah, fair question. You, I know, go to the press conference with Michelle Bullock quite often and someone encouraged her last summer – winter, sorry, Northern Hemisphere trick – to reflect on the triumph that was Australian monetary policy achieving the soft landing where many other central banks, including some in the region, have not. And she wisely said that central bankers don’t ever declare victory. It’s a continuous process, and that certainly is how it’s proved to be. Three things happened that I don’t think anyone frankly thought were likely back in the middle of last year. The first is the world economy, and you’ve been reporting it a great deal, including recently, back last April, pretty much everyone thought that the whole paradigm of the world economy was changing. Donald Trump had announced his enormous raft of tariffs. I was in actually China the week after that and you could see the effect it had had. And people felt that China – that Australia in particular, would be likely to be in the crosshairs of that because of our strong trading relationship with China. And so pretty much everyone was asking, how bad could this get?

And even you guys were talking about we might even need to do a double cut or something.

Well, we did a scenario. It’s an interesting exercise that we did a ‘what if’, and some people, I think, interpreted that as being a suggestion that we were going to. It was a conditional statement and I’m glad we did it. And we’re going to do a lot more of those.

But I guess it shows how worried you were about it.

Yes, it does. I’m not going to deny that. And I don’t think if we went back and looked at the pages of the Guardian or any other newspaper or any other serious adviser, that everybody was worried then and forecast were marked down across the globe, the IMF and everybody else. Those forecasts, of course, have not proved to be true. The world is doing very much better than any of us feared back then. That’s a combination of things. The tariffs have turned out to be the bark is less than the bite, or the other way around, I can’t remember how that goes. And the AI tech boom has just totally blitzed an enormous amount of that. So those two things taken together have left the world economy in a much stronger place, plus stimulus. And that has also meant that financial conditions in the globe have been extremely easy. And that’s had an effect too. We then come on to the second point that was a surprise: it is that the financial conditions in Australia, the stance, if you like, of our monetary policy, which people often think is just summarised by the current level of the cash rate target, but it isn’t. It’s summarised by the whole range of financial indicators, from bank lending to corporate debt prices to house prices to asset prices.

So debt was cheaper than you were expecting, asset prices were going off, lending was happening faster.

All of those things. The banks, Australian banks, are very strong. They’ve been regulated that way and they’re ready to lend. They have a set of CEOs, many of whom are new, who have high price valuations at the bank that they need to justify. You’ve written about that too. I know. And yes, credit growth has been pretty strong, firstly to the business sector, but also increasingly to the household sector. I know you’ve been writing about that, so yeah, you combine the strong credit growth and you combine the easy credit conditions globally for those who can borrow globally. And you have a situation where the financial conditions in the economy were not well summarised by the cash rate alone. Some of us worried that might happen during 2025. I think it did. So that’s the second surprise. The third surprise has been the speed of recovery in private sector demand. Now, you’ve written about this too. It’s not punching the lights out and we may even come back to that question, but relative to forecasts, including our own, back in the middle of the year, private sector demand, which we’ve been hoping and expecting will pick up and have not through the first half of ‘25 and ‘24, did surprise on the upside alongside an assessment, and I’m sure we’ll talk about this too, that the capacity of the economy is really very constrained. So world economy, financial conditions, pickup in private sector demand, those things change very rapidly. Now, our stance didn’t change on a sixpence and in fact, if you look at market pricing going back to August–September last year, you can see that people were fairly progressively marking out their expectations for future rates. As this sequence of data of the kind I’ve described came in, there was no single moment when people suddenly went, aha, they’re doing a U turn. It was a gradual adjustment to clearly strengthening conditions. So you might well expect me to say this. There’s a famous Maynard Keys quote, isn’t there, about if the facts change, I change my view. That’s my perspective. I think our perspective on the situation. And look, and we’ll come to this too I’m sure, inflation is too high. We cannot let it get that out of control. People’s memory very recently of the costs of inflation. And just remember, inflation hits the poorest, inflation hits those least able to deal with it. It’s one of the most toxic forms of tax, frankly – some people call it a stealth tax – that you can imagine: it damages businesses, it damages households, it hits the worst off. And although I know people do not like higher interest rates – although savers do, but if you’re a borrower, you certainly don’t – we cannot let inflation get back out of control again. And we don’t intend to.

There’s been quite a lot of debate happening in Parliament House around the role that government spending has played in this kind of turnaround in inflation. And in particular, you’ve got the Opposition saying if the Government wasn’t spending so much money, we wouldn’t have had this level of inflation and we wouldn’t have had interest rates, basically trying to pin rate hikes on the government, which is what an opposition does. So I don’t know, how do you see this debate? And then if it’s not directly, it’s not the change in growth, we just have a very high level of spending now – government spending as the share of the economy, federal and state. To what degree does this limit the room for the private sector to grow? Because we saw the private sector come up, but it could not grow as much without causing inflation because government spending is already so high in the economy.

I have a very strong view on this, actually, which is that – and it goes back to the comment that we were making right at the beginning – we’re unelected technocrats and we’re asked to achieve two things. We’re to achieve the inflation target, and we’re asked to get as close to full employment as we can. And those are difficult challenges, as you’ve already been kind enough to highlight. We’re not there yet. Extending that job to providing free advice to democratically elected governments strikes me as completely beyond and outside our remit. I grew up in Europe – small ‘e’ Europe, not big ‘E’ Europe, depending on your view about where the UK sits – the ECB in particular (the European Central Bank) spent about a third or half of its publications trying to give free advice to national governments. It never made any difference. Actions talk and words don’t. And the actions that we are required to take is to set interest rates, to bring inflation back to target and to maintain full employment. And that’s what we’re doing. And I’m often quite struck that people who disagree with a particular government policy try to draw technocrats, maybe respected technocrats like the RBA in on their side, but my God, if you come in on the other side of it, then they will be rightly saying, ‘How dare you, this is a democratically elected government?’. There’s a process for allowing the public to decide the government’s priorities, including spending priorities, and it’s called the ballot box. And it works very well in Australia. It doesn’t mention the RBA anywhere. I mean, we could go out and give advice to the journalistic profession or the mining profession, or we could say, hey guys, maybe you should, you know, you could have written that, story better.

But I think to be fair, Guy Debelle has given free advice to journalists in the past and not always super complimentary.

Well we all know and love Guy Debelle.

Although we’ve also had opinions about the RBA, so it runs both ways.

But listen, I …

You’re dodging the question, essentially, you don’t want – not dodging, that’s an unkind way to say it.

Yeah, I’m not having that. Come on, Patrick. I’m certainly not dodging the question in any way whatsoever. I’m taking the question head on. I’m not going to have that. We have a big job to do. We take account of spending in the economy wherever it comes from. I said somewhere else – slightly cliche phrase perhaps – we’re an equal opportunity monetary policy maker. A dollar of demand that comes from the public sector, a dollar of demand that comes from the private sector, if it contributes to inflation, we have to react. I don’t see why getting involved with particular advice where we’re not experts is thought to help the public debate. There’s a vibrant public debate about public spending and long may that continue. I just think that it’s our job, frankly, to try and get inflation back under control and to maintain full employment, and that’s what we’re focused on.

That’s fair enough.

It makes sense why you don’t want to offer free advice to the Government, but you can kind of see why people are a bit confused about the economy being ‘boxed in’, is one way you suggested it might be described last year, when private spending is up and spending overall is up and inflation is going up immediately. But a lot of people don’t feel like they’re spending a lot more money.

Yep. Yeah.

A lot of consumers are telling us, and they’re telling you, presumably, ‘We’re not actually lifting our spending that much, but you’re telling us that we’re spending too much and suddenly the economy is overheating’. So if it’s not government spending that’s doing that, then like, what is it? Is it company spending? Is it particularly wealthy Australians?

Well, Luca, you’re absolutely right. And I was trying to think of an analogy of this, actually, because people say, I think you wrote a piece, Patrick, saying it’s sort of crazy to say that this economy is overheating when it’s growing so slowly. And the predominant factor here is the growth capacity of the economy. That’s the big thing. As Paul Krugman once said, productivity growth isn’t everything, but it’s almost everything. It provides the resources that you earn and spend money on. It’s the tax income that governments have. It’s the wealth that Australia has developed over time. Unless the economy can grow at a higher rate, then clearly demand can’t grow as quickly without inflation. And we are seeing that. And I can perfectly understand why people think, hang on a minute, it’s not exactly the glory days is it, with growth at these levels? Because it’s not. And our view is that the sustainable rate of growth of the economy is around about 2 per cent. That’s quite substantially lower than Australia has had in the past. And I say this point, and this is not party political, because the Government has exactly the same view, and I’m sure the Opposition does, too: the number one challenge really, for the economy, is working out how to get our growth rate back up. It’s not unique to Australia. We talked about the UK earlier. The UK is in a terrible position in terms of its own capacity strength, capacity for growth, caused by Brexit and other decisions that, again coming back, were made democratically but nonetheless had substantial economic impact. So I do understand when people think, well, is this as good as it I gets? The answer is, until we find ways to grow the economy, we have to act to ensure that inflation stays under control. And as you say, there’s a pie, and you decide how much of that pie goes on the public sector and how much of it goes on the private sector. That’s a democratically elected government’s decision and the process for deciding whether that division is right or wrong. I sometimes make this – sorry, I hope this isn’t too abstract – I sometimes make this point: supposing the RBA did its job perfectly and so it held nominal demand at the capacity of the economy at all times. Well, inflation then would be at target, and the government’s only choice would be what share of that output went to the public sector and what was left over for the private sector. And if you think about that highly stylised example, it’s pretty weird to ask why the central bank would be asked to do anything more on that. We’re doing our job in that example perfectly straightforwardly and inflation is on target.

Yeah, yep, sure thing. But in terms of, like, that breakdown, I mean, you’re seeing demand shoot up and despite people not feeling like they’re spending suddenly a whole lot more. So where is that coming from? Who’s suddenly spending a lot more and where’s that demand shooting the lights out from?

Well, it’s not shooting the lights out, but relative to where we expected it to be and relative to where it was a year or two ago, it is stronger. And it’s basically households and businesses. And that’s not a very deep answer to your question. Household incomes have actually recovered quite strongly. There’s obviously been tax cuts, inflation has come down, and there’s been a great deal of saving over the last few years. So households have rebuilt their balance sheets. And so actually – sorry to get technical – but consumption functions that central banks use have actually been wanting consumption growth to pick up for some time. And Patrick and I were talking about this before, sentiment – consumer sentiment, household sentiment – is obviously quite weak and that appears to be holding things back. But the resources in aggregate have been there for a while for households to spend more strongly and they’re beginning to do so. Business investment, which had been terrifically weak for a long period, picked up quite strongly the third quarter – data centres and what have you being part of the story there – but households and businesses are both spending. But none of them, neither of them will tell you – and I’m sure they don’t tell you – that they’re exactly ecstatic about conditions. They are growing and they’re better than they were. But this isn’t the good times yet.

I mean, even the relatively weak growth that we have seen in private demand looks like maybe it’s kept up from the indicators we have for January so far. I mean, we’re in company earnings season and companies are telling us that customers are still going out and spending.

That’s right. Yeah.

So if that’s keeping up, if people are still spending a lot of money, are we on track for another rate hike?

Well, it’s a million dollar question, isn’t it? Or is it billion dollar, sorry, that’s the $1 million …

It’s big. It’s huge.

I don’t know. And anyone who tells you they do know is lying. So I’m not here to give you an inside track today. I could tell you ‘Well, of course they are, Luca, or of course they’re not.’ But I don’t know because we still have a fair chunk of data to come in before we meet again. We’ll have a CPI number, we’ll have the national accounts, we had some labour market data this week, which I think you wrote about. You’re right. The economy does look like it’s continuing to grow at rates at or around what we were seeing at the end of last year. We’ll need to see how that translates into inflation. And this is where this capacity issue comes in, because nobody knows what the capacity of the economy is. So when I say we think it might be 2 per cent, it is only that: it’s an informed guess. And it may well be that, in fact, companies and people are able to increase productivity growth more substantially than we’re assuming, in which case we can grow more rapidly without inflation. And by the way, people sometimes use that phrase ‘inflation nutter’ in one of the pieces the other day, we’re not inflation nutters. And if the economy turns out to be able to grow more quickly without inflation picking up further and coming back down, then we’ll be the first to celebrate and we won’t need to react. But look, to be clear, and I will be clear, if interest rates need to rise further to bring inflation down, then they will. And I think the public would be on our case if we didn’t say that.

We will go back to people being on your case in a second. But just before we move on to that, we had another strong month of jobs growth. This is a bit what Luca’s talking about. It’s kind of the strength of last year’s extended in. We just got that this week. Unemployment’s at 4.1 per cent which is quite low for us. Wages, you know, decent. Is there any information out of that labour, the latest labour figures or the wages data that has maybe added more information about where the next move will be? What additional information did you get out of this?

Well, as you say, I mean the wage data came in broadly in line with where we’d expected and unemployment was a little bit lower than we had expected. Not a great deal, but a little bit. I think you had to be careful with these one month data, particularly unemployment data. They’re very noisy.

That’s what we said about December though, and it seems like it’s extended a bit.

So if you just look at the monthly profile of unemployment, labour market looked like it turned in September and it looked like it turned down. But we’ve been here before and we’ve called turning points before, the market is called turning points before and then had to, you know, eat some humble pie when things have changed. So we smooth, we look through some of these short term movements. But you’re right, one possible interpretation of those data is that, actually, employment growth is picking up again, unemployment is falling down. Another interpretation, and probably the more prudent interpretation at the moment is that broadly speaking, the market remains flat at that low level. And if that’s true, our judgement that the labour market is a bit tight would remain the case. You know, our expectation is that probably the sort of sustainable level of unemployment is probably a little bit higher than that number. But who knows, it’s another unknowable number. But it’s probably the case that if unemployment stays around that level, the labour market remains a little bit tight. And as you say, Luca, that is part of the story about why we suspect in our central projection that inflation remained above target for some time. Does it mean another rate rise? I don’t know. Because there’s a lot of other data that could come in and it may well turn out that inflation starts ticking down again or it may tick up. So we’re going to wait and we’re going to make our judgement on the basis of those data.

It’s hard, isn’t it, because we don’t know what – like you’re saying – you don’t know what rate unemployment can be before it starts causing inflation. You don’t know what capacity constraints are. Tough job, just to sum it up.

I was always told to say, never say you have a tough job. And as I said back at the beginning, I don’t want to sound cliche, but it is a privilege to be working on this topic on behalf of Australian people. And I know what tough jobs are. Tough jobs are being, you know, an A&E doctor, a nurse. It’s being a miner who’s away from his family for months on end. It’s not having a job at all. Doing a job like mine is not tough by comparison. But you’re right, there are a lot of unknowns. We do have models, we can make informed guesses, but we also have to be honest and open about what we don’t know as well as about what we do. Sometimes people give us credit for that. Sometimes people say, bloody hell, why are we paying you all this money if you don’t know anything? And both challenges, I guess, are legitimate, but we are feeling our way.

Speaking of … if I can phrase this. Speaking of people, who wonder if you know what the bloody hell you’re doing. We had a new Shadow Treasurer.

I do wonder, actually, in Australian public discourse, how where’s the line? Because it doesn’t seem to be …

Swearing?

Yeah.

I think it very much depends on the company you’re keeping. I don’t know, it’s, you know. Anyway, sorry. The point of this was the new Shadow Treasurer, Tim Wilson, so he’s come out and he seemed like he was saying, the Coalition’s going to revisit whether they support the dual mandate, quickly reversed that and said, no, no, we support the dual mandate. But what he made clear was that there was a degree of dissatisfaction with the Reserve Bank and they felt like the Reserve Bank was overweighting this full employment part of its dual mandate. And the dual mandate is that the Reserve Bank go for full employment and for low and stable inflation. Correct me if I’m wrong. And so he was saying that, you know, I’m paraphrasing very strongly here, but, you know, there’s a woke RBA in charge now. They’re not being tough enough on inflation. And because they weren’t tough on inflation and you tried to preserve the gains of employment, that’s why we’ve got inflation back.

We’ve never been less than 100 per cent focused on the target for inflation. It’s clear, it’s in statute, we don’t have a choice. When we were cutting rates last year, our forecast – and I would remind others, pretty much everyone else’s forecast too – were for inflation to come down gradually to the 2.5 per cent midpoint of the range, with employment remaining close to full employment. It was on the basis of those forecasts that we took the decisions we did. We did not say, ‘Hey, let’s let a bit of inflation get out there so that we can achieve some …’

Yeah, just a little bit, like a few more jobs.

… because that’s very dangerous. And so for anyone who would say, you know, ‘I think that that’s a dangerous strategy to adopt,’ I would totally agree. We only took the approach we did because we believed on the basis of the evidence at the time that inflation was more likely than not to be coming back to the target. And as I say, most other commentators believed that too. In light of the news that I went through earlier that we heard through the back end of last year, we began adjusting our narrative and the minutes and the discussions from the Governor over time as we said, ‘Look, we see risks coming in on the upside.’ So firstly, the number of rate cuts that were in the market were priced out. And then increasingly people started to think, here come the possibility of some rate rises. So we’re as focused now on inflation as we were last year, and we will be next year and the year after. And I say that again, I don’t want to keep coming back to this, but we’ve only very recently had an extraordinary lesson in how painful and toxic inflation can be. And the legacy of that in terms of people’s dissatisfaction with the economy is very, very evident. And we’d be crazy if we ever took our eye off that particular ball. Others will have to judge whether they believe this, but our focus on inflation last year was as strong as it is now.

But the Shadow Treasurer’s got a point, doesn’t he? I mean, maybe your decisions weren’t weighting jobs over inflation, but the outcome has been: you’ve had more than full employment over the last few years and inflation has often been not on target, so the outcomes are kind of weighted towards employment. Isn’t that fair?

Certainly, it’s true that the labour market has performed very well and again, I don’t think that that is something – I’m sure the Shadow Treasurer and everyone else is not criticising that – the outcomes in the labour market have been very good. They’ve been very good internationally. As I say again, at the time that we were cutting rates last year, our view, and the view of most other commentators, was that we could hold employment at or around that level with inflation coming back to target. So there wasn’t a trade off evident. As it became clear that inflationary risks were picking up, we acted and we’ll continue to act.

So, Luca, you want to hit Andrew with some reader questions?

Yeah. So we asked our readers and listeners to send in some questions so we could get people …

I should say I come from a Guardian reading household. I don’t know if that means I get more or less credit, but I remember … what are you doing? You’re screwing your face up.

I’m not. This is just my natural face. I was just trying to think.

I don’t know how far back you guys go, but the Guardian in the 1970s was notorious for two things. One was having ink that came off on your hands.

So low quality.

And the other one was that it was called the ‘Grauniad’.

Yes.

Because almost every story had numerous spelling errors. I don’t actually know why that was the case, but years afterwards it was still …

We still call it the Grauniad.

Oh, do you?

Yeah, yeah, yeah, yeah.

Spelling errors have gone?

Spelling errors are no more.

We’re perfectly these days.

I’m not trying to delay answering the readers’ questions.

Sounds like a stalling tactic. Classic central banker stalling.

But let me tell you, another story of even less interest to your readers, your listeners.

They’re very keen to hear from you. They want to know, so this one’s from Addison: Why do you keep increasing the cash rate as a tool when the ones driving up inflation are conglomerate supermarkets and cashed up Boomers? Addison’s words.

Well, I do understand that people will feel that some of the drivers of inflation are unfair or against their interests and indeed that can be true. But in fact, if you look at the pickup of inflation since the middle of last year, it’s been very broad based. It’s been in consumer durables; it’s been in the cost of housing – and I’m sure we’ll come back to that – it’s been in market services, restaurants, takeaway meals. Inflation in its purest definition is a generalised rise in prices across the economy. And so I gently push back on the idea that it’s only one or two of those prices that’s driving it. It is unfortunately slightly more general. But I do understand and people will take views about particular corporate strategies of pricing and we saw all of that during COVID, didn’t we? Shrinkflation and all the rest of it. And I hope people, and I’m sure people do vote with their feet when they think that companies have been taking the P. Is that – P? Is that alright?

Taking the piss is okay.

I won’t go there. Interesting.

I mean, yeah, you’re right to say maybe there’s not just one price, but there is one price that people are really, really paying attention to: house prices. We get a lot of questions about house prices. You’ve made a big point of saying, ‘We can’t take responsibility for house prices, we have to focus on everything at once.’ But at some point when you’re cutting interest rates, you know you’re going to send house prices flying. So how can you just throw your hands up and say, ‘Oh, we’re just not watching them’?

Well, we don’t say we’re not watching them, but what we do say is they’re not our target. Our target is CPI inflation and we do have to therefore allow for the fact that there are multiple routes to the inflation target with different house prices. You could have a route back to inflation with high house prices or a route back with low ones. We do take them seriously because higher house prices generate wealth effects. They obviously also make it harder – and I don’t know where the question comes from, but I suspect it may come from someone who’s struggling to get onto the housing ladder – makes it harder for them to do so. So they’re important assets in the economy. They are – the kind of response you describe, where interest rates fall and house prices rise – is actually part of the transmission mechanism of monetary policy. So if house prices didn’t rise at all when interest rates fell, actually monetary policy might be slightly less effective. I would make the point that some house price rises for some people can be beneficial in terms of inequality as well as not. So for those who have mortgages on a house, a house price rise will allow them to release equity from the house. Of course, at the same time, that also means that it’s harder for those who haven’t yet got onto the housing ladder to get on. So it’s quite a complicated situation in terms of house prices, but it’s very, very clear, and I don’t think anyone’s denying this, that Australia has a housing problem. It needs to respond, it is responding. But the quantity of houses in the economy that are needed, given the rate of growth of our population, is obviously too small.

But the housing problem that you mentioned is pretty severe. I mean, how entrenched do you think it is? We had a question from Jules. Jules was asking, ‘Are asset prices now so high that those of us without assets are pretty much going to be eternal serfs with no prospect of inheritance?’

I hope not. I don’t know enough about your questioner’s background to know if they’ll be a serf or not, but I hope not. We have to take house prices and indeed all asset prices as given. They’re part of the input to our decision. The question around inequality in the relationship with monetary policy, I think is, is important and maybe I could address that. We are charged with targeting two things: one is inflation, one is unemployment. The biggest single contributors to inequality in economies over time are those two things. There is nothing more dramatically harmful to inequality than not to have a job. And there is nothing more harmful to inequality than to be facing, on a fixed income, a rise in prices and of the kind that we’ve seen in the past few years. And so people sort of say, ‘Oh well, you know, central bankers are blind to the inequality effects of what they’re doing.’ Nothing of the kind. If we achieve our targets, we have made our biggest single contribution to inequality in the economy. Some of the other things that are described are driven by a range of other drivers that unfortunately we can’t influence. But, you know, I sometimes hear this, you know, you’re part of the fat cat brigade. You’re there to help out bankers or – can’t remember what the phrase of your previous correspondent was, but, you know – kind of parasitic corporates or whatever. No, you know, from time to time those people are as angry and cross with us as your correspondent. And, you know, we could be an equal opportunity disliked, I guess. Everyone hates us. We don’t care. Which is – I don’t know if you went to Millwall while you were in the UK, but that was Millwall’s chant: ‘Everyone hates us and we don’t care.’ Maybe that should be the RBA …

A rousing chant for central bankers.

Well, it’s a bit depressing because, you know, they were kind of in the third division or something and they were right, actually, everyone did hate them. So I hope that’s not true of the RBA. Millwall supporters are actually quite dangerous. So if there’s anyone listening who likes Millwall, great team. Go Millwall.

You do care a little bit.

No, look, that was obviously a joke. The ‘we don’t care’ bit is obviously enormously important. We are trying to do the best job we can for the people at large. It’s in our statute, actually. We are there to promote the welfare of the Australian people. And I can tell you – and again, I hope this doesn’t sound cliched – I’ve devoted my whole life to doing that, first to the UK and then for Australia. And I know that the people I work for are actually driven and motivated by that. And people quite often say to us, ‘We hate your decision, which we know you’re doing it – maybe misguidedly, maybe sensibly – on our behalf.’ We are genuinely above politics. We are genuinely above the kind of distributional issues that you’re talking about and trying to do the right thing for everyone.

We’ve got one more reader question which I suspect this is a topic that you could talk endlessly about. But it is interesting. This is the question: Why is raising interest rates the only lever the RBA pulls? Surely in the entire world of economic policy there are alternatives.

So you know Churchill’s comment about democracy? It’s the worst form of government, except for all the rest. And I think probably I’d make the same comment about interest rates. It is a blunt tool. It does have distributional effects, the kind that Luca and his correspondent talking about. It has all the uncertainties that we’ve been talking about as well. But the other approaches that people have taken over time – price caps which tried in the 70s, credit constraints, exchange rate targets – had much bigger flaws. And so we are very honest about the limitations of interest rates and their effects. But the other tools, unfortunately, are worse. During the period of zero interest rates, of course we tried QE and other tools and those had their own critiques.

And printing money was the very crude way of describing it.

Well, in some sense, central banks always print money. So the interest rates are the price of money and that is unique. It is only the central bank in any economy that can actually do that and it’s a monopoly supplier of money. So QE was obviously, ‘What’s that mean? Your printer goes brr or whatever that thing is.’ But in some sense that’s actually always what central banks are doing. Even where they’re setting interest rates, they’re regulating the cost of money and in so doing affecting all of the interest rates that go out through the wider economy.

Okay, so it’s the best we’ve got.

It’s the best we’ve got. There’s a lot of track record of understanding its impact, but we are very open and I think and humble about the uncertainties of its impact.

Is it getting less effective? Because we look at the RBA’s record, I suppose, over the last – and we’ve talked about this before – like over the last decade or so, if you add up all the times that they’ve actually been within the 2 to 3 per cent, it’s only been about two years of those 11 years, not consecutive. So it was either too low and then it was too high. So how effective has the interest rate tool really been during this time if we haven’t actually managed to be within the 2 to 3 per cent that you’re targeting for most of it?

So I knew you’re going to ask me this question, Patrick. So I went away and looked at what the average annual inflation rate since 1993, which I think is when most people say inflation targeting in Australia began and it was 2.6 per cent.

Is that what you’re targeting though, an average over time?

No. But the point of inflation targeting relative to what came before is that you don’t let the price level drift. You don’t just let it drift up. And the long run success of inflation targeting is important, I would assert – I’ll come back to your original question in a minute – because we rely on inflation expectations in the long term being well anchored. And they have remained so, including during the most extraordinary pickup inflation that we’ve seen in the last few years. So that long run efficacy of policy, actually I would say is important. As you say, the reason why – people might think, well, how the hell is that true? Have you fiddled with the numbers? I hope I haven’t, I don’t think I have.

Let’s hope you get the numbers right.

Exactly. How can that be true? And given that inflation has been sort of going gangbusters the last few years, and it is, as you say, because there was a period when inflation was quite materially below the target ranges before I arrived in Australia. And the debate back then was very different. You mentioned the kind of … how long has it been in the target range? I mean, my argument would be the sort of economic shocks we’ve seen in the last few years have been extraordinary. They really have. You’ve had Covid, of course, a one in 100 year event. You’ve had Trump and his tariffs. You’ve had, in a more European context, the Ukraine conflict, which caused the UK inflation to go berserk because we’d – wisely or otherwise – switched our entire energy production to gas, and the gas price went through the roof. So the size of these shocks, I would say, and on most metrics has been really quite large in both directions and we have to respond to those shocks as we see them. Now, could we, should we, have done better? I mean, that is right, that we should be able to account for that. But the point of the range is to allow for the fact that there will be some variation and yeah, we’re going to bring it back. And we will bring it back. And we’ll do what it takes to do that.

That sounds like a better chant for the RBA. ‘We’ll bring it back.’ ‘It’s coming home.’

Do you want to ask a final serious question before we let Andrew go?

Yeah. I mean, just an hour ago we had one come in on Instagram from Becca. Becca asked, is the RBA tired of taking the blame for government failures?

I hope we don’t take the blame for government failures. We’ve got enough on our plate trying to deliver the goals we’ve been asked to do. And there’s been plenty of commentary – you’ve given me some of it today, Patrick – about our success or otherwise in achieving that. You’re out there as public officials having to explain yourself. I’m doing it here now. And you will get criticised. And as I say, I think that comes with the territory. Our job is to hit inflation. Ultimately, only the central bank can achieve the inflation target – unless you’re in a position of what’s called fiscal dominance, where the government is printing so much debt that it is basically collapsing the value of the currency, which is rare, it happened in Weimar Germany, it hasn’t happened very much since – it’s actually only the central bank that can deliver the inflation target. So, truly speaking, we shouldn’t be blamed for the errors of others, but people should hold us to account for our actions. And you’ve done that today, guys. So thank you.

I think we’ve really performed a public service. Thank you so much for coming in, Andrew.