RBA Weighs Economy Slowdown to Tame Inflation

The Reserve Bank of Australia (RBA) is considering deliberately weakening its economy to bring inflation under control. According to Assistant Governor Sarah Hunter, this might require pushing the economy below its trend growth rate. The RBA's current cash rate sits at 4.35%, following three rate hikes in 2026.

Hunter warned that geopolitical factors, particularly high oil prices, could push inflation expectations higher. To combat this, the RBA would need to engineer a gap between demand and supply capacity, effectively cooling down the economy until spending falls short of what it can produce.

The RBA's own forecasts project unemployment rising to 4.6%, a level they see as necessary to bring inflation within target sustainably. Hunter compared this approach to the early 1990s recession, which saw unemployment peak above 10% and took years to recover from.