Reserve Bank chief economist Sarah Hunter says global supply shocks appear to be occurring more frequently and the RBA will try to adjust to the new reality. She said the RBA was investing in new economic models, research, and frameworks to deal with the new problems. \u201cThese sharp adverse supply shocks have become more frequent, meaning the Monetary Policy Board and the RBA have had to navigate the policy trade-offs repeatedly,\u201d Hunter said. \u201cAnd we could see this continue going forward; economic spill-overs from rising geopolitical tensions, trade fragmentation, and the increasing prevalence of extreme climate events are just some of the shocks we are now experiencing.\u201d Her speech in Canberra to the Economic Society of Australia laid bare the challenges facing monetary policy in an era of heightened global uncertainty.<\/p>\n\n\n\n
\u201cThat means the RBA, and the economy more broadly, may have to face these trade-offs, and the costs that come with them, more often in the years ahead,\u201d Hunter said. \u201cTo help us navigate through these complexities, the RBA is investing in our knowledge, people and frameworks.\u201d Hunter made her comments in a speech in Canberra to the Economic Society of Australia. Only hours earlier, the world learned that the United States had launched fresh missile strikes against Iran, in the latest tit-for-tat assaults between the two countries that are again threatening to choke off the flow of shipping traffic through the Strait of Hormuz. That geopolitical flashpoint has already sent oil prices higher, adding to inflationary pressures globally.<\/p>\n\n\n\n
Hunter said the prevailing wisdom was to look through short-term supply or relative price shocks, relying on the assumption that the shock and its impacts would be relatively temporary. However, if the shock was expected to be more persistent and create greater risks of inflation expectations shifting higher, the central bank would need to respond by raising interest rates. In recent years, the RBA had consciously poured more resources into understanding what a world of increasing supply shocks may look like for inflation targeting central banks. The traditional approach of ignoring first-round effects is no longer adequate when shocks cascade through multiple sectors and persist for quarters rather than weeks.<\/p>\n\n\n\n\n\n\n\n
\u201cWe have launched a number of new initiatives to increase our engagement with the economics and policy community,\u201d Hunter said. \u201cThese are aimed at strengthening our ties to academia, think tanks and the broader economic community to help us test our thinking, and bring in new cutting-edge knowledge and capabilities.\u201d The RBA’s 2026 Annual Conference will focus on the topic of trade-offs, bringing world-leading academics and policymakers to discuss these issues. Hunter also revealed that the RBA is developing scenario-analysis tools to better simulate the impacts of simultaneous shocks, such as a commodity price spike combined with a trade disruption, which have historically been difficult to model using standard frameworks.<\/p>\n\n\n\n
The implications of more frequent supply shocks extend beyond monetary policy. Government fiscal policy, trade negotiations and energy planning must all adapt to a world where the economic landscape can shift abruptly. Hunter suggested that Australia’s relatively open economy makes it particularly sensitive to global disruptions, but also provides opportunities to diversify trade partners and strengthen domestic supply chains. She pointed to the government’s recent trade agreements with India and the United Kingdom as examples of proactive diversification. The RBA’s research agenda will continue to explore how productivity and investment respond to repeated shocks, and whether businesses are adjusting their risk management strategies accordingly.<\/p>\n\n\n\n
As the RBA prepares for its next interest rate meeting in August, Hunter’s remarks serve as a reminder that the central bank is not just reacting to current data but also preparing for an uncertain future. The board’s decisions will be informed by a deeper understanding of how global events transmit to the Australian economy. Hunter concluded her speech by emphasising that while the challenges are significant, the RBA is committed to maintaining price stability and supporting full employment, even in the face of a more volatile world. Her measured tone reflected the central bank’s determination to stay ahead of the curve through investment in expertise and analytical capacity.<\/p>\n","protected":false},"excerpt":{"rendered":"
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