Highlights

  • RDP 2026-06 uses survey data on Australian professional forecasters from 2015 to 2025 to estimate their perceived RBA reaction function.
  • Before the pandemic, forecasters gave inflation little weight in their rate expectations and did not anticipate cuts for low inflation.
  • After 2022, when tightening began, forecasters' perceived responsiveness to inflation rose sharply.
  • The paper uses a question-and-answer format to explain how forecasters perceive the monetary policy rulebook.

Professional forecasters make public calls on the cash rate every month. But how accurate is their underlying model of how the Reserve Bank of Australia makes decisions? Research Discussion Paper 2026-06, released 22 October 2026, takes an unusual approach: instead of asking whether forecasters got the rate right, it asks what rule they thought the Board was following.

What a Perceived Rulebook Is

A reaction function is the implicit rule that describes how a central bank responds to economic conditions. If inflation runs too high, how forcefully does it raise rates? If unemployment rises, does it ease? The RBA does not publish a formula. The Monetary Policy Board weighs a broad range of information at each meeting. Bullock told senators on 28 October that the Board aims to return inflation to the midpoint of the 2-3% range with flexibility on timing to balance the full employment objective.

Hambur and Haque estimated the perceived reaction function from survey data rather than checking individual rate forecasts for accuracy. Their contribution is to ask what mental model of the Bank forecasters were using, and how that model changed.

What Changed When Tightening Began

A key finding is that forecasters' perceived responsiveness to inflation rose sharply once the RBA began its sustained tightening cycle after 2022. Before this, as the paper notes, low inflation was not seen as a strong signal of coming rate cuts.

Bullock's opening statement to the Senate on 28 October provides context. She described the Board's aim to return to the target midpoint with flexibility for the employment objective. That flexibility is part of why no simple rule fully captures the Board's approach, and why the perceived rulebook of forecasters does not always match the Bank's actual behaviour.

Three Acts of the Study Period

The study spans three distinct episodes. Pre-pandemic: forecasters gave little weight to inflation, did not expect cuts for low inflation. Post-COVID uncertainty: forecasters updated views only after actual decisions, not from communication alone. Post-2022 tightening: perceived responsiveness to inflation rose sharply. The paper covers 2015 to 2025, which gives it an unusually long view across very different monetary policy environments.

The paper also found that RBA communication about labour market conditions and financial stability shaped forecasters' perceived reaction function in some respects, even while inflation communication was less effective on its own during uncertain periods.