Sydney: Australia’s economic recovery is running into unusual constraints, with demand exceeding potential output, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser said on Monday. Speaking at a UBS conference in Sydney, Hauser highlighted that the current recovery is the tightest the nation has seen since the early 1980s, signaling limited room for near-term monetary easing.
Hauser explained that while the absence of spare capacity means stronger employment and busier companies, it also poses challenges for policymakers. “That can still be consistent with bringing inflation back to target over the medium term. But achieving that goal will require policy to be restrictive enough to keep shrinking the gap over that period,” he stated.
The central bank last week left interest rates unchanged at 3.6%, adopting a cautious stance following three rate cuts earlier this year. Inflation is now expected to remain above the RBA’s 2-3% target band until at least mid-2026, due to stronger consumer demand, a revival in the housing market, and persistent capacity constraints. Economists from major banks including the Commonwealth Bank of Australia and HSBC have indicated that the easing cycle may be nearing its end, with markets pricing in at most one more rate cut by mid-next year.
Hauser emphasized the importance of boosting productivity and investment in new capacity to ease the supply-side pressures. “If we fail to do so, we may find ourselves boxed in on the rail. If we succeed, we could be off to the races,” he warned, underscoring the need for structural measures to support sustainable growth without triggering persistent inflation.
The RBA’s message indicates a delicate balancing act: supporting continued economic activity while managing inflationary risks in an economy operating with minimal spare capacity. The path ahead will require careful policy calibration and strategic investment to strengthen Australia’s long-term economic resilience.