RBA assistant governor says interest rate hikes are essential to curb inflation despite housing strain

Reserve Bank of Australia assistant governor and chief economist Dr Sarah Hunter told 60 Minutes that the central bank continues to raise interest rates because they are the most reliable way to bring inflation down, even though the policy is causing hardship for many mortgage holders.

"It does weigh on us here. It does weigh on the board but we gotta get inflation out for the good of everybody, and that’s really what we’re trying to do," Hunter said.

Hunter explained that past attempts to control inflation, such as wage freezes and targeting credit growth, were less effective than adjusting rates.

"What we found did work and we found it here and in many other countries is interest rates. The challenge is it's not painless, unfortunately, and we know some people are feeling the pain, at the moment, and there's no painless tool, but this tool does work, and that's why we use it," she added.

She noted that while the policy is painful for borrowers, it has already helped lower inflation, though recent oil price shocks have caused a modest uptick.

"We have actually brought inflation down over the last few years. We're not there yet, and it's lifted up a bit recently," Hunter said.

The interview also highlighted broader housing-affordability issues. Builder Brad Duggan of Metricon said that regulatory fees and charges are limiting the construction of new homes, making it unlikely that the government’s target of 1.2 million new dwellings will be met.

"I don’t think I can build them faster – I build a single-storey home in 60 days. So I don’t think productivity really is a problem. I think the issue is the cost that goes into building those homes," Duggan said.

Hunter acknowledged that government spending contributes to demand and that the RBA’s role is to reduce that demand through monetary policy.

"Government spending is definitely part of the picture, but we’re an independent central bank. It's really not our place to tell the country what politicians should or shouldn't spend," she said.

She expressed hope that once inflation is under control, the public will be able to move beyond the current cost-of-living concerns.

"I’d actually love it if the country could forget about inflation," Hunter said.

The discussion underscored the tension between monetary tightening to fight inflation and the strain it places on households, especially amid a shortage of new housing supply.