Bold claim: Australia’s households are bearing the brunt of what many consider the RBA’s misstep. The Reserve Bank of Australia has faced sharp criticism from a leading economist for taking a path that, in hindsight, deepened the squeeze on families while inflation and interest rates stayed stubbornly high. Fresh inflation numbers due on Wednesday are expected to show prices rising 3.7% over the year to January, following a 3.8% rise in the year to December, a level that sits well outside the RBA’s 2-3% target band.
Warren Hogan, EQ Economics’ managing director, has long urged the RBA to lift the cash rate more decisively. In an interview with Business Now, he argued that the central bank’s slower response when inflation re-emerged in 2021 and 2022 hurt the economy. He pointed to other economies that acted more aggressively, saying the RBA chose a different strategy—one that involved not raising rates as much as peers, and then cutting pre-emptively.
Hogan notes that the RBA began cutting in February last year even as trimmed mean inflation remained above 3%. He contends, “They cut rates before inflation was back to target.” The bank’s thinking, he says, was to avoid higher rate rises and pull the trigger on easing early, believing they had inflation under control. To Hogan, that was the core, unforgivable mistake: a strategic miscalculation that worsened the inflation problem rather than solving it.
All eyes will turn to the RBA on March 17 to see whether the cash rate is held or whether another rate hike follows. Markets broadly expect a hold, but the upcoming inflation data could tilt the balance. Earlier this month, the RBA lifted the cash rate to 3.85% after three cuts in 2025. The prior year had seen the cash rate held at 4.35% for around 18 months as the central bank fought post-pandemic price pressures. Inflation later resurfaced, forcing another cycle of tightening.
Hogan argues that a substantially higher cash rate is needed to stamp out this inflation surge. “We know that 4.35% didn’t work in 2024. The question is, would it work now? There’s no reason to think it would,” he says. He suggests the bank may need to reverse recent cuts, then pause to observe global developments before deciding the next steps. Still, he warns that inflation won’t be tamed with a cash rate kept well below five percent in the near term unless something drastic occurs in the economy, which would take an exceptionally long time to unfold.
