Fireside Chat Fireside Chat at the Queensland Futures Institute Annual Regions Summit

It is my very great pleasure to be joined by Andrew Hauser, the Deputy Governor of the Reserve Bank of Australia today. Andrew joined the RBA in 2024 after a very distinguished career with the Bank of England, which you will also hear when he speaks to us, and I think he brings a really unusual vantage point on how monetary policy interacts with the real economy, and especially real economies like the ones we’re here to talk about today in the regions.

Now, we mentioned that last week the Bank, the RBA Board, handed down its decision on monetary policy and also put out the Statement on Monetary Policy. So there’s some very fresh intelligence that I’m sure we’ll hear about today, but the heart of the conversation is not about settings now, actually, it’s about Queensland’s regions 2060, because the decisions that we make today are obviously going to make a difference to Queensland for decades to come. So what I’m hoping that we’ll get out of today is to have some perspective from Andrew which brings the national into the regional and really helps us to understand how we and our regions fit into the broader economy as a whole.

We will be asking for audience questions in a little while, so please put your thinking caps on because there’s going to be plenty of opportunity.

To start with, I guess the really important question, Andrew, is the Board met just over a week ago, published the Statement on Monetary Policy, so we’re all really keen to hear a bit more colour on how the Bank is thinking about the balance between inflation, the labour market and household spending.

Thank you. Thank you very much. It’s always great to be in Queensland. I’m a huge fan of Queensland, and your introduction where you said I was a bit unusual was a classic Queensland welcome, so thank you very much. One of my first trips outside of Sydney when I got here was to Townsville, and a number of Sydney-siders said, "What are you going to Townsville for? You could go somewhere …" I said, “because I’ve been told it’s the heart of Australia.” It has commodities, it has agriculture, it has public investment, it has social challenges, and actually that was an incredibly good piece of advice, because for a Brit new to the country you couldn’t go somewhere more interesting and challenging and different from the experience that I have. There’s some giggling over here even, by the way, when I mentioned Townsville. Anyway, back to your question.

The RBA’s job is to keep inflation between 2 and 3 per cent and to target full employment consistent with that level of inflation. Our message is simple. Inflation is too high. You don’t have to take that from us. We’re obsessed with inflation. It’s our job. You can go and ask people, you can do surveys of public opinion, you can go and talk to companies, as we’re doing here and will continue to do for the rest of the week in Queensland, and everywhere you look people say price rises are too high, cost pressures are too strong. Some of that is obviously not home-grown in Australia. Some of it is coming from the Middle East. We obviously know there’s a crisis over there that’s pushing energy prices up. Some of it does come from Australia and it comes in the form of excessive pressure on capacity.

Monetary policy needs to bring inflation down and that’s why we’ve raised interest rates three times this year. Unfortunately, and here is the bad bit, I guess, it only can do that by reducing pressure on capacity by reducing demand in the economy. So that does mean slightly slower growth in consumption, slightly slower growth in employment. We’ve seen a little bit of that so far. We’re going to need to see more to get inflation back. That’s not a slump, it’s not a depression. We’re forecasting consumption will still grow by 1.5 per cent a year or thereabouts, employment will still grow about 1 per cent. We’re not seeing in our forecasts a reduction in the number of jobs in the economy, but it’s a lot slower than Australia has known in the past and it’s a lot slower than recently.

One final point, while we concluded last week that interest rates were okay where they were for now, we’re worried about the inflationary outlook and we’re worried about the upside risks to inflation. I would list three. One is the Middle East crisis and the possibility that it gets worse again. I thought, as many of you did a few weeks ago, with the announcement of a peace deal things would calm down. That hasn’t been the case so we’re watching that closely. Secondly, there’s an extraordinarily boom going on in the global economy, in AI and the tech sector, and particularly in trading partners that we have. Anyone who has tried to buy a laptop recently will know that the price of memory has gone up sharply. That threatens inflation from overseas, and weak supply growth – I’m sure we’re going to talk about this a great deal – capacity, productivity growth at home is also something we’re watching closer. If those upside risks to inflation crystallise and we don’t see inflation coming down we will, and we’ll have to, raise interest rates again and we’ll do so.

Thank you. Sobering. You talked about global and you’ve talked about national factors. What about regional economic conditions? Do you see much dispersion and is there much difference between metropolitan and region?

The RBA sets policy for the whole economy, of course. We’ve only got one interest rate. We can’t set policy for Queensland or regional Queensland or NSW. You can’t actually understand that economy without getting out and about. It’s very easy as a bureaucrat and a public official to sit behind your screen looking at spreadsheets saying, "Ah-ha, I understand this economy." There’s an extra overlay if you’re a foreigner as well. So I believe very strongly in getting out and about and speaking to organisations firsthand, and if you want to know about the resources sector, if you want to know about tourism, if you want to know about agriculture, the export trade, the rare earth industry, you have to come to Queensland and you have to get out of the centre of Brisbane as well, as we will be tomorrow, to find out what’s really going on.

We have a liaison team in Queensland. They are our eyes and ears in Queensland and do a fantastic job briefing the Monetary Policy Board, along with their colleagues in other capital cities around Australia. I’m going around with them to see organisations. Today we’ve seen the Queensland Farmers’ Federation this morning. We’ll be seeing others this afternoon.

What really stands out for me in Queensland, and you talked about it at the beginning, and others I’m sure will do, the positives and the negatives of the regions are all around growth. The positives are obvious. You have strikingly resilient outlook for demand, backed of course by the infrastructure programs that are going on everywhere. But much more than that, the dynamism of some of what we might call the older industries of extraction and agriculture, but also some of the newer ones as well. A colleague here I was talking to beforehand, I think he’s on your panel later, was talking about space industries. This is truly modern Australia. And of course you have strong population growth. People want to come and live here for the sun, and they also want to come here and work. Those are great things, and I should say to you as a Brit whose country is going through some pretty big challenges at the moment, either or both of those things would be what people would kill for.

The challenges are obvious. You’ve talked about them already. Pressures on capacity, housing, public services, infrastructure more generally, job shortages. I don’t want to say those are good problems to have because that would be to trivialise it, but it would be a lot worse if you were trying to drum up business, trying to get interest going. That doesn’t seem to me to be Queensland’s problem.

Absolutely fantastic. Thank you for that. That leads me on, really, to a bit of a discussion about infrastructure. We do have an amazing pipeline here. We have the growth, as you said, we have the Olympics, the energy transition across regional Queensland. How does the RBA assess whether investment is lifting productive capacity rather than simply adding to price pressures?

This is interesting because some forms of government spending of course purely add to demand, but infrastructure spending is different. It adds to demand but it also adds to supply, and the challenge, as you say, for us when we’re looking at the aggregate economy, is how to work out what the net impact of those two things is. The demand usually comes first in the form of jobs, construction jobs, for imported materials, for housing for the – we get into that catch 22 where we want to build houses, but we haven’t got the houses to put the people who build them into and so on and so forth. That’s a challenge. That puts pressure on local resources.

The supply comes later in terms of jobs, in terms of output, in terms of greater productivity. We saw it with the mining boom where the enormous – I was in Gladstone about a year ago with the team, and you can still see the big concrete sites where the huge teams were living and building the gas pipelines, still sitting there years later as an indication of how enormous that effort was now the gas operations are run by vastly fewer people. So you see that pick-up in demand first and that does put pressure on inflation and we have to factor that in. It doesn’t mean we shouldn’t be doing it. It doesn’t mean that that investment isn’t worthwhile. It doesn’t also mean that necessarily all of the demand on resources is coming locally. Data centres – I know that’s not such a big story in Queensland but it’s a big story down south – a lot of the materials for data centres, a lot of materials for the mining boom were imported, and of course that doesn’t put pressure on local resources in quite the same way.

There are areas of the country, shocking I know, that aren’t doing quite as well as Queensland, and some of their workers may be coming up here to relieve the pressures. So there are some pressure valves for that pressure on demand, but overall the risk is that when you go through an investment boom as you are now, and to some degree the country is, you will get short-term pressure on inflation and that is relevant to us as we set interest rates.

Yes, absolutely. You mentioned housing, actually. Several contributors to this year’s leaders’ survey did point to housing supply as a binding constraint on whether workers can actually go out and work in particularly regional areas, and that is something that we hear every time we go and speak with councils. What is the RBA observing in housing and labour markets, particularly in the regions?

Well, it is telling that coming from Sydney where, to be honest with you, the only discussion point at the moment is how rapidly house prices are falling, that the implicit point in your question is the shortages. Of course that picture of shortages in the housing stock is not just true in Queensland, it’s true nationally and it accounts for the enormous run-up in house prices since COVID, something like 50 per cent. That’s an eye-popping number and it does put some of the recent price declines into some sort of perspective.

People want to live here. They want to come here for the sun, they want to come here to work. That’s great but it puts pressure on the housing stock, not just house prices of course, but rents and rental availabilities. When I was in Townsville back at the beginning of my time here, less than 1 per cent availability of rental properties. Astonishingly low, people living in tents outside and goodness knows what else. So we need more houses in Australia, we need more houses in Queensland.

It’s interesting actually when you look at the facts. People often say we’re a bit rubbish at building houses in Australia. It’s not true. The number of houses built per head of population in Australia is actually rather higher than in most other countries, it’s just not high enough. So there is some good news amongst the bad, but we have to do better. The constraints – I’m not going to list them – I will list them, I suppose. You know what they are. Construction costs are the number one point that are raised at the moment. The catch 22 of you need people to build houses and they need somewhere to live. The challenges of insurance in a weather-challenged state.

The role of monetary policy in all of this is, frankly, limited. As I said at the beginning, our job is to set policy so inflation hits the 2 to 3 per cent range. We do that by moderating the rate of demand growth. It’s a crude tool, but it’s what we have, and our contribution to that should be to bring the growth of construction costs down, the price of new homes to a level where the incentive to build them is appropriate, and to keep creating the conditions for investment and for house building, but we can’t go beyond that at the RBA. We don’t have a target for house prices. We can’t have a target regionally or nationally. That would be a very bad outcome for all concerned. We still have work to do to get inflation back to the range and that’s what we’re doing.

Thank you. One last question before I turn to the audience then. Just on productivity, because that’s obviously a topic of great conversation for yourselves, a number of the annual leaders’ survey contributors this year described a decade of slowing productivity growth and obviously the flow-on more cautious investment climate. Even as the regions are actually looking to build new industries, as indeed is the economy. So what are you seeing now that gives you the confidence or even a watch-out, I guess, about the capacity of economies to lift productivity whilst they’re actually trying to change themselves?

Productivity is, I would say, the number one challenge for most of the western world, for most of the developed world. Not necessarily the United States who seem to be a bit of an outlier, but in Australia, as is true in Germany and the UK, in Korea and other countries, productivity growth, which had been relatively strong and had been the basis of Australia’s enormously successful growth model over decades, has slowed. We assume productivity will grow this year and next by about 0.7 per cent a year and that gives a speed limit to the economy of about 2 per cent GDP growth a year. That isn’t a bad number actually if you’re from the UK or you come from Germany, but from Australia’s perspective that has a must-do-better mark on it in terms of its history. It means our real earnings growth won’t be as high, it means government receipts won’t be as high, it means our wealth won’t be as strong.

I think the fact that it’s shared with other countries who have very different governmental systems and technology set-ups and social welfare programs and all the rest of it shows you that although it’s right to focus on local issues and the issues that could be dealt with in the country and locally in the state, there’s probably something bigger going on, actually. There’s probably something bigger going on in terms of technology adoption, in terms of dynamism, company creation and destruction in terms of competition.

I was talking to the Treasurer before I came up here, it’s a big challenge for policymakers and it’s a big challenge for politicians as well. Again, and this sounds a bit of a cop-out, we at the RBA cannot drive productivity growth up or down, but we can, and have to, ensure that the country grows at a pace that is sustainable to ensure that inflation doesn’t pick up.

What’s the case for optimism? I think it’s quite strong. I think you’ve talked about some of it already. One of them actually comes out of the weakness. We were talking to some people just this morning, the pressure on capacity forces you to think how can I do this cheaper? It’s not the ideal circumstance in which to invest, but it’s an incentive to do so.

AI and technology get a lot of attention and I think rightly so across the economy, but actually there are many other innovative innovations that Australia, I won’t say leads the world in, but is certainly up there. You and I were talking earlier, the Australian farmers this morning had some stunning stories about the things that they had done to drive greater yield in sugar cane, milk, in fruit and vegetables. I remember in the UK the farmers used to say, "Those bloody Australians have all these cooperatives and this new technology. We can’t compete with them." There’s something there that even as we beat ourselves up, as we do sometimes, about how we need to do better that is a real pilot light for success.

The case for pessimism, since you asked me and I’m a central banker I better go on with it. Head winds, the Middle East, certainty, inflation. These are top of mind for businesses, I’m sure they’re top of mind for many in the room, and one of the reasons why business investment growth until quite recently hasn’t been strong enough to be honest. We do hear a fair bit about some of the challenges of doing business in Australia. Those are social choices, but we do hear a fair bit. Government gets it. There’s a Productivity Commission in Australia. There’s no Productivity Commission in the UK. There’s a Productivity Commission in Queensland. There’s smart people working away at that problem. And it’s not all for government, and I’ll maybe pause here. It’s interesting that whether you come from the left or the right of politics in Australia, people are either saying government should fix it or they’re saying it’s government’s problem, they should get out of the way. Both those views have some merit, but actually what’s not always said enough is what can we as business and innovators do. As I say again, when you actually listen to the individual stories that come from Queensland businesses and Australian businesses, it’s really quite awe-inspiring some of the things they’re doing. Perhaps we need to get back a little bit to the debate not being all about taxes and spending and social overheads and so forth, important though those are, but also celebrating the innovation that businesses in the regions can do.

Wonderful. Well, a call to arms for Queenslanders to demonstrate how innovative we are. I’d like to turn to the room now and see whether we have some questions for the Deputy Governor.

Hello. Really interesting discussion there and your point about innovation and I want to link it to the – you mentioned the interest rates are a crude instrument that you have at the Reserve Bank’s beck and call. Is it time for the government, maybe with the Reserve Bank’s support, to be a bit innovative in terms of what are the measures we can actually employ to move those levers in terms of demand? Could we look at maybe temporary increases to superannuation or other ways to actually address the excess of demand in the economy, which isn’t as crude as the interest rate setting which is your only tool at the moment?

I hesitate – it’s interesting, someone asked me this exact same question this morning actually. I hesitate to get into the politics and fiscal implications of the superannuation sector. I would make one warning, which is that in general the difference between fiscal policy and monetary policy, or one of the many differences, is when you make a change to taxes, say you cut the tax rate for a period, it’s bloody hard to get it back up. When you increase spending it’s very hard to take it back down again. That’s been true across time and across countries. My suspicion is if you raise the rate – the contribution to superannuation, for example, as you suggest, with the intent of increasing the savings rate, you might find that it’s very hard to get it back down again. You might ask the question of what that money was being spent on and, hang on a minute, I thought it was going on innovation, but it seems to be going on X,Y and Z. How do I change that back round again. Households could still adjust. They could say, well, since I’m saving more in my superannuation fund I’ll save less elsewhere.

I’m not saying it’s a stupid idea. I’m sure there are lots of very innovative thoughts one could have, but be careful playing with structural variables like that in the economy for fear of unintended consequences. Interest rates can do the job. They are somewhat crude, as you say, and I said, but they do work and they’re probably more effective than some of these slower-moving things, in particular where they imply value judgments about how people use their money to save and invest and the services that governments provide.

Great question. Thank you very much.

I’m glad you mentioned the Productivity Commission. They’ve often talked about lack of productivity, productivity problems and lack of economic complexity, and we see that in Queensland historically. What’s your advice to this group of people to drive economic growth and opportunity and simultaneously drive up the economic complexity in Queensland?

By complexity, just explain what you mean by that.

What I mean by that is it’s not just digging stuff up and shipping it to a coal port. It’s actually about multi-dimensional and rich value-add chains with a lot of clusters of innovation and things around it.

This is an absolutely fascinating question. Dig it and ship it, or however you want to call it, has been, I should say of course, a big earner for Australia over much of its history. It feels lower value added, I appreciate. It exposes the country to volatile commodity prices in a world driven by geopolitical claims, it maybe also potentially leaves one exposed, but it is a very clear comparative advantage of Australia. Something like I think two-thirds of the periodic table is in the ground somewhere around Australia in commercially exploitable amounts. The economy’s answer to that is how you evolve your business depends on where your comparative advantage is. So here is an ugly fact. If you have the cheapest resource of – we’re very close to that on iron ore, probably the best earner for the country is to dig that out of the ground, get as good as you can at digging it out, processing it and getting it out to somewhere else that can use it, and one of the many trips I did was around the Pilbara a year or two ago. The technology that the companies up there use to process iron ore is incredibly impressive, the autonomous vehicles, the processing and the speed with which they do that is impressive.

Working yourself up the supply chain, therefore, needs to be done carefully because you could work away from something you had a real comparative advantage at towards something you don’t really have a comparative advantage at all. I know Australia has histories of that in its past, so does the UK to be honest. It’s sometimes called the perils of picking winners.

When does it work? It works when you have the technology and the know-how, it works when you have competitive cost base, it works when you have a flexible and knowledgeable workforce, the resources and capital to provide to them, and sometimes – and if you look at Taiwan and Korea and some other countries in the region, they’ve actually done that very successfully.

When does it fail? It fails when, as I say, you don’t have competitive comparative advantage, when your cost base is too high to compete internationally. It fails when you don’t have the flexibility or the well-trained workforce to handle those higher-powered tasks. There are some cases where, actually, if you have the cheapest resource in the world you should dig it, you should ship it and you should save the income and invest it elsewhere where it is done best, and Norway obviously has done that with its oil fund. I would say actually – we talked about super funds earlier, although they’re not directly linked to the savings that have come from Australia’s wealth, they’re indirectly linked to it.

There’s all sorts of stories around of Australian companies having effectively moved up the value chain, but we should be careful not to think we should be good at that, if we’re not we should stick to the things we’re good at. That’s a tricky and challenging task but one we do need to keep going at.

Thank you. A cautionary tale. That’s interesting. Do we have another question? Right. While you’re thinking, Queensland has significant comparative advantages in renewable energy resources but it’s navigating uncertainty in traditional fuels like gas, particularly given the evolving policy and market settings. How does the RBA think about the energy transition and climate issues?

Well, we don’t have a horse in that race in terms of the rights and wrongs of it. There is a lot to be said about – I know about the energy policy in Queensland and the government has just issued a new plan for that, and I know that’s triggering a lot of public debate, but energy and climate affect every element of the economy. So even though we are not in there making decisions or influencing the choices, we do need to understand how it’s affecting the economy. You only have to look at the Middle East to see that. It’s often framed as a negative, you know, climate shocks, climate risks, higher prices. It’s worth saying, of course also, that cheap energy is often the best way to become internationally competitive.

Australia’s history has shown in the past that cheap energy, whether from older or newer sources, has given it an enormous comparative advantage in global economies. Obviously we’re in a slightly different situation now and that’s why some of this debate is going on. But it affects prices, it affects productivity growth, it affects investment, it affects insurance, it affects every level of the economy. We are keeping a very close eye on that. Some of the modelling required to understand the impact of climate change on economies is mind-bogglingly complicated and the best people on that globally are not yet fully across it.

But I think this energy debate, which I have watched closely from afar, and I’m watching it even more closely now that I’m here, is really critical and it links back to a number of the topics we’ve talked about before in terms of where is the growth coming from, how does it influence productivity growth, how do we not just see energy prices and climate change as a risk, but how do we actually help it turn us into a super power. That debate, I think, is extremely important for the country.

Thank you. I love all that modelling stuff, being a modelling tragic myself. Another question from the audience. I think we have one over here. Thank you to this side of the room.

I’m quite short too so people won’t recognise me standing up. More of a personal question. Coming from the UK we probably don’t know much of your background, and don’t consider this a job interview or anything like that, but what’s been some of the greatest challenges that you’ve seen in previous roles and what was it that sort of interested you in this role for Australia?

This does sound like a job interview, doesn’t it. The biggest challenges in my old job had to do with permacrisis. The UK went from one financial and economic crisis to another during my time there. Some of them were global, obviously, the global financial crisis, although I know that didn’t really affect Australia in anything like the way it affected the UK, the Ukraine war, COVID were all things that weigh very heavily in Australia, but we had some home-grown ones too. We had the LDI crisis, which some of you in the room may know about, others may not, where a new government came in and tried to go for growth quite quickly and sent the guilt market into free fall. It was my job often from the financial markets perspective, to get in there and try and help sort that out.

That taught me a lot about how financial markets and economies work. I would rather not have learnt that, if I’m honest. I did think when I came and had the interview with the Treasurer here that his first question was going to be, and I think should have been, "What the hell have we got to learn from someone from such a failed country as you coming here to a place with such great success?" He never did ask me that question, I should say. I was very ready for it if it came, and I do think you learn from crisis. One of the interesting things about Australia seen from the UK perspective is how incredibly successful the economic model has been. I tell you what, the moment you get off the plane in Australia, whether you do it in Townsville or whether you do it in Sydney, you are struck as a Brit at the average standard of living. I say "average" because I realise there are people at both ends of that distribution.

Now in terms of other things I’ve learned, I’ve greatly enjoyed engaging with Australian culture and the warm and loving embrace that the Brits always get from you lot. I’ve tried to support AFL. My first team was Carlton and that went badly. My second team was the Sydney Swans and I’m not going any further on that front.

A final comment. I was up in Townsville, as I’ve mentioned once or twice, cued laughter from the left, and I had a blue suit on. It was the day of the State of Origin game and a bloke turned to me in all seriousness and said – we were opposite the rugby club and he said, "You don’t want to go over there, mate, dressed like that." I thought, what are you talking about? I didn’t, as it turned out, and it was good advice. Anyway, State of Origin, well done, everyone. I’ve learnt you have to give as good as you get in this country.

It’s been fantastic. The RBA is in the news a lot. It is in the front page and that’s understandable because everyone’s mortgages are linked to our interest rate and we take that responsibility very seriously.

To end on an even more serious point, it’s a rare privilege to be given the job of setting interest rates for a country that you weren’t born in. It’s actually – only a handful of people are given that responsibility globally. I worked for Mark Carney at the Bank of England who was a Canadian who came into the UK. There are others, but not many, and I’m very grateful for that opportunity and privilege, but also realise I need to learn and understand. That’s why events like this are so important for me in particular, but also for the RBA. Thank you for making me welcome, thank you for teasing me relentlessly, and good luck to getting some back. Thanks.

Thank you very much. It’s good to see you wearing both colours today anyway.

Look, you’ve talked a little bit about productivity, and are there any lessons that we need to learn in terms of regional Queensland cities, Are there any lessons we need to learn from other countries in terms of boosting our productivity?

I don’t know if I can answer that question in any very knowledgeable way. I know that the regions account for – what is it – something like 50 per cent of employment and activity in Queensland, which is a good deal bigger than the share nationally, and frankly it’s probably a good deal bigger again than I’m used to in the UK where cities dominate. London is a mega city, obviously. My impression is many of the challenges we’ve talked about at a national level are large at a state level and larger still in the regions. So I’m not sure they’re different recommendations. I fear the main point is if they’re harder at state level, they’re even harder regionally. It doesn’t mean you shouldn’t be pushing for it, but many of those challenges we’ve talked about in terms of capacity constraint, also the opportunities for innovation are as true regionally, it strikes me, as they are in terms of the state. What would you say to that question?

I think you’re absolutely right about that. Certainly when we travel into regional Queensland the feedback is very consistent with all the things that you’ve spoken about today. It’s about productivity, it’s about housing, it’s really a lot about housing. It’s interesting that you mentioned insurance twice. Insurance comes up every time we go over the divide.

Is that getting worse?

Yes, absolutely.

And say why?

You say why.

Well, the weather is getting worse, the Banks are getting – I suppose I would say better at pricing the risk. Is that the right word? Or more granular is perhaps a different way of putting it. So whereas previously people were paying average rate, you’re now priced more specifically to the area you’re in. I notice when I said "better" there were a few sighs around the room and I’m sure that doesn’t mean universally so.

Some of the risks in recent years in insurance globally have meant premiums have risen. When I first arrived here, and this was true in the UK as well, actually insurance costs were the number 1 topic, not just in Queensland, but most of our liaison contacts wanted to talk about. It’s gone down the list a little bit nationally, but maybe when I do go to Toowoomba tomorrow we will hear more about it. Is that right? Have I got it right?

I think it’s still probably important in Queensland. I was talking to an insurer not long ago who said if you’re just concentrated in Queensland it’s very difficult to get re-insurance, largely because of the impact of climate, actually, and resilience. We might actually turn to a question on that, actually.

Regional Queensland is more exposed to compounding weather and supply chain shocks, and this year obviously we’ve seen quite a few of those on both sides. As we continue to build out the regional states, I think everybody is thinking about how you build in economic and physical resilience into the regions and into the cities. How is the RBA thinking about supply shocks and economic resilience?

Just as supply shocks are hard for you and your businesses, they’re quite hard for central Banks too. I’m not saying that as a means of trying to get some sympathy, but to state the obvious. An adverse supply shock pushes inflation up and it pushes employment growth and activity down. Those two things tend to pull your decision about interest rates in opposite directions. Higher inflation might cause you to think you need higher interest rates, lower employment growth might force you to think the reverse.

The normal playbook, as it were, for Central Banking is to do what’s called looking through the price levels. You have a temporary supply shock, sadly let’s say oil prices go up overseas in a one-off basis. It’s tough luck, we’re poorer. It’s a hard thing to follow, but it’s a fact – it’s a hard thing to swallow, but it’s a fact. The best response from a Central Bank to that type of one-off temporary shock is to look through it and to say, well, we’ll just let the price level rise. We won’t change interest rates.

But there are three circumstances, at least three, where that isn’t the right thing to do. The first is when you have pressure demand on supply already, as we did in Australia. The second is where those supply shocks are at risk of being persistent and volatile, as unfortunately they seem to be in the Middle East, and the third is where there are risks that that one-off increase in the price level actually gets built into prices and inflation expectations and costs, so-called second round effects which make life difficult, and in those circumstances you have no choice but to raise interest rates. That is the story behind our three interest rate rises this year, which initially I think people thought what are they doing, that isn’t normally what Central Banks should do because we saw the underlying pressure on inflation quite elevated.

In terms of what you do on the real side of the economy, as it were, to deal with it, I had three headings that I thought of. One is obviously diversification. We talked about it earlier, increased complexity. You ideally don’t want to have all your eggs in one basket. That’s tricky when you have a big comparative advantage in that basket. The second is flexibility, obviously, in labour force, in capital, in innovation, and I’m sure you’ll be talking more about that and some of the challenges for that later.

The third is buffers, whether it’s – primarily in our business we’d be thinking about financial buffers. Do Banks have enough capital, do they have enough liquidity, have households put some money away for a rainy day, do firms have some financial buffers. Actually Australia is in a much better place on that third heading than it was a few years ago, and then many other countries are. One of the interesting slight puzzles for us at the moment in reading the macro economy is that although consumer confidence in the surveys is very, very low, people are very angry and they’re very angry about inflation in particular, that isn’t feeding through into anything like the kind of weakness in consumption growth that you might naively think it would imply. We think one of the reasons for that is that actually households do have – on average, I should say, not every household – these buffers to dip themselves into.

There are two pieces of good news on this resilience front. One is on the world economy. We, and almost everyone else, when we saw the Trump tariffs and the Middle East blow-up, thought my goodness me, here we go, we’re going to get a huge global slow down. This is going to be a problem, and we marked our forecasts down and a number of other people did too. In fact, the global economy in 2025 surged ahead. There’s all sorts of reasons for that. Some of the tariffs didn’t last quite as long as people thought they would, some of the supply chains proved to be much more flexible than you would have thought. The AI boom across many parts of the world compensated for it. The world so far – economy has so far proved to be much more resilient than some of the worst predictions have proved. That could all be going wrong as we speak, there could be some crisis happening now, but right now that’s a cautious note of optimism against the gloom and doom about the uncertainties globally that we’ve been talking about.

The other one is – and maybe if we’re looking to finish, I’ll finish on a high, and it’s to come back to the point I made before. There’s an interesting opportunity for Australia to benefit from a fragmented world. Why might I say that, because it sounds a little bit contradictory. Because we have stuff other people want. We have it below the ground, we have above the ground, we have human capital, we have ideas, we have our great location in the region. Those are all – we talked about comparative advantage earlier – real opportunities to navigate this strange and difficult and threatening world where people are going to be stockpiling things and going to be thinking, gosh, when is the next crisis coming from.

Countries like Australia, if we get our act together, and Queensland within it, can actually, I think, help navigate that world quite effectively. If you don’t want to have to take my word for it, take the word of Australia’s own history. If you look at the great boom times, great strength times in Australia, they’ve often come after periods of global distress when reform and change have been at their most. I know – some people say I sound weird and giddy with my own rhetoric there, but I do think there is an opportunity for countries like Australia, in that fragmented world, to really embrace some of its natural strengths.

Wonderful to end on a giddy note from a central Banker. If you could please join me in thanking Andrew Hauser for a wonderful chat. Thank you. I’ll hand over now to Keirstyn Spencer.