Fireside chat Fireside Chat at the Money Marketeers of New York University

Before we get to the heart of the discussion, we’ve heard some questions about the Australian economy, some deeper questions on financial markets, but we’d like to start, I wonder if you could set the scene for us a little bit. Talk to us about where Australia’s economy is fitting into the global picture right now. Give us your lay of the land.

Well, let me start with a question because I’ve got a bet on with Morgan about this. So I want to see a show of hands. How many people in this room have been to Australia? That’s pretty good, 50 per cent. Australia is the smallest economy in the G20 by population, and it’s also by some measures the most distant. So the capital of Western Australia, Perth, which some of you may know is part of the mining sector, is by most measures the most remote city in the world. It’s more than 2,000 kilometres from the next city, defined as a place of more than 100,000, you know, participants. So it’s small and distant, but it’s the second richest country in the G20 when you look at the income per head or the wealth per head. And why has it, how has it achieved that sort of, you know, zero to hero type of escalation? It’s by being incredibly effective at exporting its natural assets. It’s a huge country actually and, you know, a Brit has to realise this. It takes 7 hours or so to fly across the country. It’s in the same sort of scale landmass as Canada, Brazil, China, the US. It has huge natural endowments. Again, I was also testing all of this on the way up. By some measures, there are 70 to 80 of the 118 elements of the periodic table have commercially exploitable deposits in Australia, probably the largest in the world. Those endowments span the old industries, So we’re the largest exporter of iron ore, mostly to China. We’re the largest exporter of coal. And we’re the first or second largest exporter of liquid natural gas. But it’s also the new industries as well. The critical minerals, rare earths, are spread across Australia. So it’s the old, it’s the new. We have probably the largest solar capacity of any country. Sorry to go on about these sorts of boring statistical questions, but I could ask the room again, what proportion of the Australian landmass would have to be covered in solar panels to provide the world’s energy? And most people say, I don’t know, 20 per cent or 50 per cent. The answer is 5 per cent or less. Now that’s still a pretty daunting prospect. So it’s not just the old world, it’s not just the new world, it’s also for eternity of course. Because most recently our second largest by value export is gold. So the geographical position in Asia has proved to be to the advantage of Australia.

It’s a diverse economy. More than a third of its people were born overseas. That’s second in the G20 only to Saudi Arabia, which obviously has a very different kind of composition. And over 80 per cent of its flora and fauna are unique to Australia. Many of them want to kill you, by the way, which you’ll find out if you ever go. Stable institutions. I hope this doesn’t sound like a sales pitch. If it does, I mean it to be. It was the first country to grant women the vote in the 19th, early 20th century, and one of the first countries to have a secret ballot. It has world-leading universities. Its education is actually in its top 5 exports. And it’s the number one dream destination for global talent according to BCG’s survey. I don’t know if that’s true or not, but that’s what they said. So look, Australia is a poster child for the benefits of globalisation, and it has gotten rich on the back of it. Obviously, that also puts us at the front line as those rules of the game, as it were, are changing as they obviously are changing now. We import pretty much all of our manufactures. We have one of the largest deficits with the United States, which is pretty extraordinary given the size of our economy in dollar terms. We’re at the front line of the US-China relationship. We rely on the US for our strategic oversight, but we rely on China for our economy. I sometimes say we, you know, adopted the Carney doctrine before Carney, because Australia has managed that relationship with all its tensions very effectively now for many decades. And Heather won’t let me go without saying that we also have the fourth largest, soon to be the second largest pool of pension savings in the world. I did a lot of this research myself, so I’m a very happy export to Australia. But I think, you know, that sort of puts I think it explains perhaps why, you know, Australia, a small economy in population terms, in GDP terms, is I think an enormously interesting case study of some of the global trends that are now occurring, both the benefits and some of the challenges.

We’ll talk about global trends right now. Australia has been at the forefront of a lot of global trends recently. One of them is that it was the first country to start raising interest rates.

Yes.

In this we call it mini cycle, at least in the last number of months, as suddenly market interest rates have pivoted from pricing interest rate cuts in most countries to pricing interest rate hikes in a lot of countries. So being at the head of that cycle, as the economy of Australia recovers, inflation seems like it’s picked up. What’s been the thinking behind the RBA’s recent monetary policy pivot? Talk to us about that.

So if I go back a little bit, we tried to adopt a rather different monetary policy strategy coming out of COVID. We had the spike in inflation, as most countries did. We had to raise interest rates quite sharply. We didn’t raise them as sharply as other countries because there was a view at the time, obviously it wasn’t there, but there was a view at the time that it made sense to try and retain the employment benefits, the unemployment benefits if you like, of the COVID period. And what that meant was not only did we not raise rates as far, we were more cautious in cutting them. We began cutting rates quite cautiously in 2025, and it looked like we were coming for a pretty soft landing. Growth, as you say, picked up to about 2.5 per cent at the end of ‘25. Unemployment remained close to historic lows, and inflation was expected to come back towards the middle of the 2-3 per cent target.

Three things changed, however, as we got into the second half of last year. The first was the world economy. Now, of course, everybody thought that we were going to hell in a handbasket in what you call the spring, and I still call the spring, but I have to remember it’s called the autumn in the southern hemisphere, in other words, in April of ‘25. And many in the markets have assumed that Australia was in the firing line, frankly, because of our relationship, economic relationship with China. That proved, of course, entirely wrong, and the global economy roared forward in ‘25. And Asia in particular, and I spent several meetings with Asian central bank governments who’ve been really astonished at the pace of the export growth, in particular because of the tech cycle. So that was one strike against the view that the economy would reach this soft landing in ‘25. The second was, and I will come back to this later, the stance of our policy measured by our short-term interest rate alone looked pretty restrictive. And we had a set of banks domestically that were very well capitalised, keen to lend, and obviously credit spreads were at a historic low. So broadly, you know, more broadly defined, our financial conditions were easier than the short rate alone implied. Thirdly, our output gap closed much more quickly than we expected. Private sector demand picked up quite strongly, but also, this is a big point about the Australian experience, and I think pretty much every economy outside the US, our supply capacity is critically strained. Our estimate is that the supply capacity of the Australian economy at the moment probably can only grow at about 2 per cent. All of those things meant that by the third or fourth quarter of last year, inflation began to pick up, as you say, and is now around 3.5 per cent on core and nearer 4 on headline, which is too high. And so we had to tighten policy in response. As you say, whether this was a made-in-Australia issue or whether in fact we caught the tide of global inflationary pressures beforehand, I don’t know. I think the second may be truer than the first.

I mean, you’re making a very subtle point there about the global aspect, and I would want to actually highlight and maybe push a little bit more on one of the things you said about the global tech cycle, which is not something that one hears from a lot of central bankers in Europe or the United States. It seems like a really subtle point. Talk to us maybe like a sentence.

Yeah, it was the data centres, right? This is the servers and the racks and the concrete and the construction, all of those things that go into making, you know, the hard investment of the tech cycle a reality. Sometimes we think of AI as being basically disembodied, but as you know, and I’m sure many in the room know, it implies a level of physical investment that is massively higher than the internet. And Asia, the Asian economies, obviously we know about Taiwan and microprocessors, but the Asian economies produce that stuff. It goes into the data centres and they’ve done very well out of it.

They’ve painted a very interesting picture. And so we’re looking at this world where there’s suddenly some strong growth from AI, demand for physical resources, and then we encounter an oil shock. Boom. So talk to us a little bit about that. Talk to us about it as a central banker, what from first principles you think it means, and talk about it in the Australian context as well.

Well this is a big issue, and it’s top of mind for Australia, to be honest. We’ve been having a few chats here in the last couple of days, and I’ve been struck that it’s AI first, Iran second or third. I think if you were in Australia right now, Iran would be number one, and it’s very much top of mind for policymakers. The sort of framework I think about in terms of this – and I stole this from Frank Smits, actually, he should get the credit – but there’s five components you want to think about: the size and duration of the oil price shock, the energy intensity of consumption, production and trade, the starting economic conditions, the colinear shocks that might be happening at the same time, and other policy development. And if you take those in turn, the size and duration of the shock is a global thing. Well, it’s not quite a global thing, because there are interesting sub stories about Brent versus North Sea oil, all of those local things, and there’s a particular issue about supply conditions in Australia, we have quite low stocks, 30 days or thereabouts which is lower than the IEA number, and we take most of our oil from Asia, who in turn get theirs from the Middle East. We don’t buy much from the US at all at the moment, and the Government is working hard to secure those supplies. The energy intensity has some good news and bad news. We are a net energy exporter: that coal, liquid natural gas, is quite a good earner at the moment, but we are almost wholly reliant on imports for oil and we are the highest user of diesel per capita in the world. So this is a big real income shock for Australia, even if national income and the fiscal coffers may benefit from that net export position. The starting economic conditions, we already talked about: relatively tight labour and product markets, inflation is above target, and inflation expectations in the short term are picking up. The colinear shocks, by which I mean the tightening of financial conditions: actually, we think we’ve seen less of that, because we’ve already been seeing this tightening. And fiscal policy has already responded a little in Australia and may respond more. So I think, look, if you put that all together, it’s obvious that inflation is going up in the short term, and people are very conscious of that. We can see that in consumer surveys. There’s not much monetary policy can do about that, other than prevent it from getting into long term inflation expectations. The big question for us is what it’s going to do to activity, and therefore what that’s going to do to inflation over the medium term. Those are the numbers we’re crunching through at the moment.

Just to dig a little bit further there. So short term shock, short term income shock, strong starting point, also, though, mitigating terms of trade benefit for Australia. As a central banker, do you care more about monitoring inflation expectations at a time like this? Are you thinking more six months ahead or nine months ahead?

Well, I think the reality is you have to care about both actually, and you don’t want inflation expectations in the medium to long term picking up. That, of course, is a central banker’s nightmare and we’re very alert to that. Long term inflation expectations have not picked up, if you look at markets. But of course, that’s partly endogenous of expectations about policy. But we do need to take account of activity. We do need to take account of the possibility that that will close the output gap for ourselves. Of course, the trickiness there is we know it affects demand, but we probably think it affects supply as well. So our economists are being kept very, very busy trying to work out that trade off. And, I mean, you know this, because you guys trade in fixed income markets, but I mean it was very interesting to see that huge ramp up in short rates, particularly UK, eurozone, for the US story too after the invasion. Some of those numbers, you know, options, I think had five interest rate rises for the eurozone at one time for example, pretty extreme, and the markets have normalised a little bit so far. So I think easy to see that upside inflation pressure, more important for us now to think through what that medium term impact might be. It might still be on the upside, in which case we’re going to have to respond. But we do also need to take account of the possibility that if activity slows – and, you know, for example, consumer confidence indices in Australia have fallen very, very sharply; I saw the University of Michigan series have done so in the US as well, in fact, lower than Covid, I think, if I’m right, the Michigan survey is the lowest in its 70 year history. I don’t think those surveys necessarily tell you a lot about what consumption is going to do. But if they’re right, we have a big income shock coming our way. We’re going to have to think about that in that overall game. So it is a central banker’s nightmare. You know, the stagflationary shock: inflation up, activity down. Judging the balance between those two is, I guess, how we earn our money.

And it’s a stagflationary shock that’s coming at a time when the world has seen a lot of fiscal expansion over the preceding five, six years. So that was also part of the context. You spoke about that at the beginning of your discussion here, how do you think about making monetary policy amidst an environment of large global and domestic fiscal expansion?

So this is a question, as you know, Doug that central bankers tiptoe like a minefield, and in particular in Australia, where this is a very live debate. So let me just say a couple of things. My first thing, perhaps a slight joke, is that I’m never quite sure what people are saying when they ask this. Are they saying rates are too high because fiscal policy is over-expanding the economy, or are they saying that rates are too low because we’re getting sat on by evil fiscal dominance? It can’t be both. And some people try and argue it’s both. I think the differentiation I draw for central bankers is whether your debt stock is sustainable or not. Where your debt stock is sustainable – and Australia lands foursquare in this: general government net debt, GDP, in the bottom quartile of the G20 – I hold very clearly to the separation principle, which is, it’s not for unelected bureaucrats like me, a foreigner, to dictate to a democratic government what they do to deliver their democratic mandate. They know our reaction function, and they know that we have been asked – by them, in fact – to hit the inflation target, and we will do so. And that is the way that I think monetary and fiscal policy should interact with stable debt dynamics. It’s interesting, of course, that that’s not true necessarily of every G20 country. I was rather struck to find, looking some data for some of this, that a quarter of the G20 now has general government debt over GDP, and another quarter near that number. I think now that much-discredited number of 90 per cent that a couple of researchers came up with a few years ago because someone found a problem in their spreadsheet, there’s numbers that are north of that. I’m not saying they necessarily have unstable debt stocks, but you know, you mentioned at the beginning, you see what happened in the UK from a financial stability perspective, when the government pushes too far. Fiscal dominance could be an issue in some cases, although I don’t think it’s reared its ugly head yet. And there’s this whole interesting debate which I know Kevin Warsh has raised, and others, about, well, do central bankers bear some of the blame here, because they pushed interest rates to zero, expanded balance sheets to buy debt during periods, and that they somehow confused the incentives of fiscal policy makers. I don’t think that’s true either, by the way, but I do think we need to be conscious of the interaction between our issues and debt where you have an unstable debt stock. But in Australia’s case, I’m going to plead the Fifth if that’s the right expression.

Exactly the thing to say in the United States. And to follow up, you made the subtle point about the squeeze in short term interest rates and you had to [hike rates]. They’re priced into a variety of different countries around the shock from the war. Do you ascribe the kind of heightened volatility and heightened pricing and changes and pivots in the market pricing paths of central bank interest rate policy, more to just shock, just the market liquidity, to an underlying inflation environment, to this fiscal condition, sort of unpack that for us.

I think it’s this thing that we talked about a minute ago. You can very easily see the short term pickup in inflation. You can see that actually, it’s interesting. I said, you know, we in Australia come into this with relatively challenging initial conditions. But actually, of course, the US core PCE has been roughly one percentage point above the 2 per cent target as well as one the other day. So we’re not unique, actually, in going into this situation with inflation, not uncomfortably high, but the wrong side of target. So I think you know people in the market clearly felt geez, here comes a shock with the wrong sign on it, and they also had been working through this trade off that I described a minute ago as well. As I say, we all we understand it’s important that central bankers need to help the market and broader public understand how the shock will play through with the system. But to be blunt, we have to work that out first ourselves.

That makes a lot of sense. And so let’s talk about currency then. The other big thing that’s been moving around. The USD, the global reserve currency, has had a number of stress moments in the last five, six years, many of them benefiting it: the Covid shock, the Ukraine war, now this. As the so-called poster child small open market economy – I don’t really know that there’s a poster child for anything, but that’s what the so many of the textbooks say – Australia is a country for which currency can matter more, it’s broader financial conditions. So talk to me, both as an observer of financial conditions around the world, what you think about these shocks and how they play out in Australia.

So I had to look up the phrase ‘opposite twins’. But apparently it’s a thing, and the US dollar and the Australian dollar are basically opposite twins. People run towards the US dollar – usually, not always, didn’t do so last year, when there’s a problem – and when risk is off, they run towards the Aussie dollar and so you do tend to find them moving in almost completely opposite lock step. That sort of risk-on characteristic of the Aussie dollar has sometimes been a challenge Australia over time, particularly during the mining boom of the early 2000s as a source of volatility. But I have said, I’m sorry to say, perhaps in terms of the headline here, I mean, you know, it’s been more often than not, a buffer. It’s moved roughly in line with interest rate differentials and so there’s not been a lot to see here in terms of the macro role of the Australian dollar in our overall assessment. I mentioned the super funds, and I keep doing so, but as this outflow of savings has increased, it has substantially improved Australia’s net international investment position, which had been relatively weak and is now much closer to balance as a result of that outflow. And that will continue to improve. If I mentioned NIIP, pivoting for the US dollar, of course, you roughly see the reverse, where, for many years, decades, centuries maybe, the US was able to benefit from the privilege of basically needing to run deficits but funding them in a way that was a net earner. That obviously has ceased in the most recent period. And, you know, I hesitate to make any comment about the US dollar in the US but that is a live debate, as you well know in markets as to whether the US dollar is losing some of its sheen. I think the forecasts of the death of the dollar are probably a little premature, to be frank. I spoke about this a few weeks ago in the Booth panel. You can go through the number declining share of reserves, and you know the reduced premium that the US is able to charge, but there is still no alternative in the global FX market to the US dollar. And I guess it’s been behaving a little bit more normally during Iran shock.

A bit less, less dollar-like, I guess. And then if the Australian – yes, but the Australian dollar has actually been pretty robust all things considered, relative to other currencies, through this episode.

That reflects our interest rate path, which we talked about earlier.

So, so that’s I think that’s leading exactly where I want to go with this last question before we turn it over to the audience, which is the overall sweep of Australian financial prices: the interest rate environment, the currency environment, the bank lending environment. What’s your overall assessment of financial conditions in Australia right now?

So I should say that when Dov asked me this question, you’ve noted the San Francisco Fed game, which I don’t know what happened to the president of the San Francisco Fed, but it’s a game in which – and you were quite cross about it – the only change you can make is the funds rate, and then there’s this awful tick-tock tick-tock as you watch what you’re what decision does to the economy. And it turns out that pretty much whatever decision you make, you get this thing at the end that says, sorry, you caused a financial crash, you haven’t really accounted for it. And it did make me wonder if that was a blessing in disguise. I went and did a search for other central bank games, and pretty much none of them have survived. I’m not sure why that is. The Bank of England had a balloon that you would fly up to infinity or crash into the ground. That also you can’t find anymore. The ECB had about 58 games showing why it was a much better idea than having multiple national central banks.

There’s good news, we can vibe code one.

Exactly. Well, good thought. And they’re not even on that history machine, whatever it’s called. And look, I mean, we all know, don’t we, that the stance of policy is not just the short rate, it’s 3 other things: it’s the expected future path of rates, as Ben Bernanke is always keen to remind us, it’s whatever this blasted neutral concept is, and it’s the broader set of spreads that transmit that into the economy. All three of those things have actually been, you know, in operation in Australia in the last period. As it became clear that the data were coming in stronger through the end of 2025, markets moved upwards. And actually, we’re often accused of surprising the market, but actually we didn’t really surprise the market with our rate rise in February. A little bit perhaps, but markets had seen these data come in. They knew, I hope they knew, I think they knew, our reaction function, and they thought, well, these guys are going to have to raise rates. And so you saw a tightening of conditions long before we raised. Now, I’m often told by my Australian colleagues that this kind of channel doesn’t work very powerfully in Australia because almost every mortgage is linked to the cash rate. But, you know, long expected rates affect exchange rates, expected rates affect term borrowing by companies. There’s still a pretty powerful effect there. That was in play. The concept of neutral, I mean, you know, we’ve been round and round the houses on this, and there are many, many ways of estimating neutral. Williams has his famous estimate and 3 or 4 others that we use. I remember years ago at the Bank of England, somebody showed a picture of actual rates and then a picture of the neutral rate, and the neutral rate was about 3 times as volatile as the actual rate. And Willem Buiter, who was on the committee at the time, said it wasn’t obvious to him that the measure of long-term, you know, equilibrium that was more volatile than the actual rate was analytically terrifically useful. It’s certainly been challenge to factor neutral rates into our assessment. It’s supposed to be very important, and as I say, we’ve been on the easy side of that stance. So all three of those elements not in the San Francisco Fed model have been important in judging our stance. And the problem is, of course, you can’t take all those things, shove them into an algorithm, and say, oh well, the stance is actually X. You have to make judgments. And I was always told the best way of actually working out what the central bank thinks the stance of its policy is, is to look at its forecast for inflation. Because assuming that it’s conditional on either the path that you set out or a market path, you should be able to judge better from that than you can from any other input measure what they think the stance of policy is going to be. And that’s where I always turn first, is where I’d recommend you go first too.

Well, the Reserve Bank of Australia has one of the most illustrious histories is actually hitting its inflation target in the world. So you guys got a lot of credit for that over time. Well, I’m sure it’s going to happen again.

That’s being too kind. Before someone reports that back home and says, ‘What’s this guy been drinking?’, it’s true that since the beginning of the inflation targeting regime, which funnily enough in Australia is a slightly disputed matter because it came in by degrees, but let’s say something like ‘92, ‘93, actually inflation has averaged almost exactly 2.5 per cent. So if we were inflation target averaging over that very long period, we’d have done fantastically well. We did, however, have the experience that the US had as well, with inflation being, you know, below target pre-Covid and then quite materially above. So we’ve got slightly lucky on the averages. So it is one of the questions I get asked most frequently is, you know, ‘Have you got inflation under control?’, And I think it’s a fair question. And I think particularly people remember what happened after Covid. Central bankers have to be pretty humble about the importance of maintaining that credibility by doing the right thing.

Andrew, dynamite response to that. So we’ll now turn it over to the audience. We have around 15 minutes to go through some audience Q&A. Igor Gavrilov, our President will pass the microphone around. So please think about questions. Please raise your hands. I know there are a lot of people who follow the Australian economy closely in the room and other people who may want to learn things who don’t follow it closely. So please think about questions and please raise your hands.

I wanted to ask about the point you made about how in Australia the discussion is very much number one, Iran. And, you know, we’ve been reading from afar about sort of the politicization also of the political sensitivity of lines like, you know, at the petrol station. And I wonder if there is an element – I used to really like when Christine Lagarde in, in, you know, 2022 would say, well, we can look at inflation expectations and we can look at surveys, but to some degree we also have to just look out the window and see, well, how are people behaving? How are people responding? To what extent is part of the process here to really understand behaviourally how are people responding?

Well, I think absolutely, and someone said in my introduction, like you said in your introduction, when I was in the Bank of England, I ran our regional agency network for a period of time, which were people around the country talking to businesses and asking them how things were really going. In fact, that agency network learned most of its best tricks from Australia, because years ago Jacqui Dwyer, who now works for us in a different role, came over on the secondment, if you remember, and took one look at our operation and said, ‘You’re not fit for the 20th century. You need to, you need to raise your game,’ and taught us how to do it properly, measuring conditions in a very precise and scientific way. And the Australian system, which is where we have we don’t call them agents, they quite like to be called agents, it sounds like government, but it’s not quite as sexy a job, I have to say— but are based around, you know, the state capitals spread right across the country and spend a great deal of time talking to businesses and, you know, community organisations and the general public about economic conditions. And so those sorts of inputs, and I know the Fed has a similar system. Those sorts of inputs become vital at a time like this, and we’re heavily reliant on them because they can not only tell us things sooner, they can tell us why things are happening, and they can tell us about sentiment. And yeah, I mean, if there were one set of outputs I’d encourage you to read closely in the RBA’s publications at the moment, it would be what the liaison offices are saying.

Two questions. One is, I’m also an Australian company board, independent board member. I was told with a rate hike, the consumption in Australia is getting very weak, almost like recession type. Are you worried about, you know, with a high interest rate people are going to be even more, you know, stressed out with payment of living expense, basically. And second question is, in the US or Canada, European Union, they’re all starting stablecoin and all those. What’s the plan in Australia to open it up for digital assets?

Look, on the, on the first question, the concept of recession in consumption is probably a bit dubious, but I mean, consumption is still growing, or at least it was in the much recent data. It is relatively low, that growth, and that could well be because sentiment is weighing on that growth. The latest data was 0.3 per cent in the most recent quarter. So it’s not spectacular, but it’s certainly not in recessionary territory. We’re watching that closely. We did need and do need private sector demand to slow a little, given the supply capacity of the economy. But it isn’t yet in such dire circumstances, but we’ll need to watch closely. As we see the effect of the oil price shock work through.

On stablecoin, the RBA has had a set of, I think we all do these sorts of exercises, you know sandpits or whatever, in which we work with fintech companies to understand how we could link our payment systems and our forms of electronic money into new and innovative forms of payment. I am personally very interested in that topic. I think it’s important. The industry hasn’t settled on a set of protocols which, you know, critical mass of people can get around? And one of the things I worry a little bit about is this so-called walled garden problem. You mentioned major banks. Most major banks have their own coins now, and they come with a kind of, oh yes, and obviously you’ll bank with us as a result. And that isn’t quite what a central bank wants to see from a stablecoin. You want to see one that has general acceptance and is safe and secure. And I don’t think we’ve yet reached consensus on that, but certainly it’s an active discussion in Australia. I’m not sure the Australian stablecoin model is going to, you know, lead the world. I suspect we’re more likely to be a receiver of that technology as it’s developed elsewhere. It hasn’t taken off in a big way yet, but we’re keen that when, and I suspect when it does, that we’re a partner in that exercise and understand it, as I think we should be. And a final point on that, I think central banks have to be careful here saying, oh well, these things are dangerous and evolution, you know, will undermine the world as we know it. And obviously that could be true of stablecoins that are poorly designed, is if you’re not careful, a license for being yesterday’s hero. And in the Bank of England’s case, there are a number of elements of its history where a failure to understand how the form of money was evolving meant that the central bank’s ability to do its public policy job was diminished. Slowly sort of merge towards the reality of the situation. And I think in this case too, central banks have got to understand this technology, and if it achieves critical mass, embrace it.

Just wanted to elaborate a little bit on some of the comments you made about some of the downside risks. I guess, given monetary policy acts with lags and some of the cash flow impacts of the first hike that occurred in February are only just starting to come through. And, you know, as you’ve pointed out, the fall in sort of consumer confidence, there’s other factors like a decline in auction clearance rates. How’s the Board thinking about sort of some of the lags of prior decisions, as well as this significant income shock that’s occurring from diesel and petrol prices, and how the data is likely to play out over the coming months?

Yeah, the trouble of course is that you said February, and we obviously also raised rates in March as well. The trouble is we’re not going to see the majority of those effects for some months. And so, yeah, we do have to take that into account. We do in our forecast, we’re doing a new forecast round at the moment, be out in a few weeks’ time, we will have to attempt to quantify those effects. But it does, it does add to the challenge that we were describing before about evaluating whether this oil shock, if it is a shock, how big a shock it is, does some of the job of slowing the economy that rate rises would be expected to do, whether it substitutes or complements that rate rise? That’s something where I’m not, this is a bad answer to a good question, but I haven’t got any particularly concrete answer to give you today. But it is important and it is part of the assessment. We’re certainly not going to ignore that.

Just a follow up question with regards to consumption. Earlier you mentioned how important it is to look at the RBA’s inflation forecasts. What about private sector credit? We’ve seen 5-year highs, but now you’re starting to slow. We all know how Australians are obsessed with the housing market and that’s such a massive feedback to consumption. As we look at inflation in the context of a target, Has the RBA thought about private sector credit in terms of what rate of growth would be an acceptable target?

Well, and I think I’ve touched on this in the conversation and, you know, the growth of private sector credit has been an important part of our assessment that financial conditions in ‘25 were at the margin easier than the than the cash rate alone would imply, because banks clearly were lending more to households, and you mentioned households, but also businesses as well. And Australian banks are incredibly robustly capitalised, incredibly strong in terms of liquidity. The local regulator sets itself a gold standard for that. You know, in a funny sort of ironic way, the implication of that because you have entities that are incredibly well placed in them. They’re certainly not looking at, you know, tidying up their balance sheets or pulling back. And they did take the opportunity to increase credit growth in 2025. Many of the CEOs of the banks are new, and you may know one bank perhaps represented at the back of the room today, you know, has from time to time been one of the most valuable, if not the most the most valued bank in the world. So you have to perform to deliver that kind of market expectation, and indeed they have. And it was one factor, frankly, in the assessment that, there was excess demand in the economy as those data began coming in. And we hear about those credit provisions in real terms, and it’s tricky, of course, right, because banks are supposed to lend, you know, companies in particular have not been investing very heavily in the last period, and they need to. And to invest, you need to borrow. So it’s certainly not the case that all credit growth is bad credit growth, and even strong credit growth can be very helpful. But certainly it was part of our assessment that we thought credit growth could possibly, you know, have possibly contributed to these information conditions.

As someone who lives in Sydney, so it’s good to hear that you get a lot of questions about, you know, does the RBA have inflation under control? And I’m not a big fan of measures of inflation expectations or neutral rates either, but as someone that does live in Australia like you, it does feel like to me, outside of those official measures, thinking about liaison, that the ability of firms, this is pre-conflict I’m talking about, the ability of firms to be able to, at the margin, put their prices up in a, you know, across the board when you look at the data seems to be pretty important in terms of, you know, why you haven’t hit kind of the 2.5 per cent or actually been anywhere near it really. So my question is, what gives you confidence that 4.35 per cent on the cash rate, which didn’t really work before, why would that be high enough time?

Well, we don’t know. I mean, you know, we’re feeling our way. And, you know, as you mentioned, there is a new shock to deal with. It’s interesting when you talk to companies, and I know you do this too, that companies will tell you in Australia, as they do here in the US, that they’re finding it incredibly difficult to get price rises through. And by that they mean, you know, the huge squeeze they’ve had on costs over the past few years, COVID residue, and now the new shock on energy as well. The rates will have to go to a level that bring inflation back to target, to be totally frank with you. And if that means them going higher, it means them going higher. If it means we’re high enough, it means they’re high enough. I wouldn’t say we have high confidence that we’ve yet set interest rates at the right level, because you never do have high confidence, but we’re going to have to monitor this new shock pretty carefully. There are some models, as you well know, Justin, that say that a shock of this kind, which is very visible and very obviously a shock in a country like Australia to pretty much every company’s cost base, that that gives you an opportunity to put price rises through that you might otherwise have found difficult to push through. And if that’s the case, well, we’ll have to react to that, but I don’t know that we’ve seen enough yet to be sure. And I will come back to this point. Inflation in Australia is too high, and at about 100 basis points above the midpoint of the target in core, that’s not very different to the core measures of many other G20 countries. I don’t mean by that to say that we, that we, that we’re complacent, but on the other hand, the, the intensity of the policy debate in Australia, which I welcome, slightly loses touch with that point that inflation in Australia is not out of the range of the inflation seen in other countries. We all face a pretty similar challenge, I think.

And the point I want to actually follow up on, that’s an interesting comment you just made, would be that I believe in the United States as well, prior to the GFC, it was not normal for inflation to be exactly at target. Yeah, before the GFC, it was actually generally overshooting, generally 2.2.

So to what degree do you think we maybe forgot the way inflation behaved before the GFC in light of our 10 years of post-GFC trauma?

I mean, you know, the sort of dominant theory about that persistent undershoot was some sort of China effect, wasn’t it? You can challenge that a little bit. It’s not obvious why a relative price effect of that kind should affect relevant inflation year on year. But that was a story. And models are calibrated on history, and that’s one of the reasons I guess it’s implicitly addressed in this question why you do have to be appropriately sceptical of those models and look at a range of indicators when you’re assessing how the inflation is going, which is still a question in front of us.

I have a question from your perspective as a policymaker in Australia, but also policymaker with a global perspective, how you think about different central banks mandates, whether there’s a single mandate or dual mandate, and whether you actually think that matters, or is optimal monetary policy sort of the same regardless of that sort of formal structure?

The RBA has a dual mandate, very similar in fact to the Fed’s dual mandate.

As you probably know, if you fit a Taylor Rule to central banks and you can’t see a material difference in the average inflation settings between dual mandate and non-dual mandate. There’s not a large sample, but dual mandate, non-dual mandate central banks. And I, to be honest, I think the distinction much more apparent and real. And we’re all doing flexible inflation targeting, right? We all understand that if inflation is away from target, and the pace at which you bring inflation back will have outward and informal consequences. No central bank that I know of, even with a single such as Bank of England, would ever say, I’m just going to do whatever it takes to bring inflation back, bugger the rest. That doesn’t mean, on the other hand though, that we’re somehow trying to hit two targets with one tool. We’re trying to hold employment above its natural rate, or, you know, that we’re sort of giving up on the inflation target in favour of something else. All those claims have been made about the RBA in the recent period. I don’t think they’re fair, actually, because when we were cutting rates in ‘25, our expectation and the expectation of most people in the market were for inflation to come back relatively gradually towards the midpoint of the target. Those proved to be wrong. But it wasn’t as if we were somehow going for an employment outcome instead of trying to stabilise inflation. We felt that we could do both at once. So long answer, I think the distinction is more apparent than real. I personally think it’s probably quite a good idea to recognise that employment and output plays a role, but it isn’t something that you can try and achieve in addition to your inflation target. It’s about how quickly you bring inflation back to target and how much you care about retaining the output and employment gains. And as I say, we’ve been engaged in a bit of an exercise to test that in Australia recently. There’ll be a debate, doubtless, as to whether that exercise was a success or otherwise. I think it’s probably a bit early to actually judge on that as of yet.

Australia has a productivity problem.

Yes. In common with most of the developed world, to be honest.

As we look forward, you talked about the investment in technology, AI, etc. How are your forecasts or expectations changing based on those potential returns?

Based on what sorry?

The returns from new technology, AI, etc. Will that improve the productivity outcome?

I mean, my answer is I hope so, but we’ve revised down our productivity growth assumption to 0.7 per cent a year, which is pretty anaemic by Australian historical standards. Adoption of AI and the latest technologies we were discussing earlier with others in Australia is, is not at the leading edge at the moment, candidly. And some people would argue it’s quite good to be a fast follower in new technology measure that people are still working out how it helps or how it does not help. But to the extent that AI ends up being a substantial contributor to productivity growth, Australia has some catching up to do, candidly. I will be the first, we will be the first to celebrate if it turns out that productivity growth can exceed that rather limited forecast, because we’ll start to see inflation come in lower for given levels of growth. But I think, you know, I hope that is coming. I know that the government is keen to promote productivity growth in its own decisions, and I think that’s important for Australia because all of these debates about short-term trade-offs, which are deflation and all of the other things we talked about tonight, as someone famously said, are second order compared to the ability of the economy to generate growth. Australia’s had a great history on that. But certainly is in a constrained position at the moment. Again, as I say, I don’t think that singles us out from the UK, really bad productivity story Germany, Japan, many countries in Asia. All of us are seeking that next golden wave of growth, but certainly in Australia it’s a very high priority policy issue, and I know government agrees with that.

Well, I want to say there was no trade-off that between lively commentary and insight. So thank you very much for a fantastic presentation.