Key Highlights

  • Hunter said earlier approaches, including price controls, a wage freeze and credit and money targeting, were not particularly effective.
  • Her argument is relative: rates are not costless, but the RBA judges their cost to be lower than the alternatives.
  • The Governor has said short-term inflation expectations are elevated and energy prices are much higher than assumed in August.

On 60 Minutes, Assistant Governor (Economic) Sarah Hunter explained why the Reserve Bank relies on interest rates, pointing to earlier experiments with other tools and their verdict.

Every time the cash rate rises, a familiar question follows: is there really no other way? With the Reserve Bank of Australia (RBA) having lifted its cash rate target four times in 2026, to 4.60 per cent, the question has particular force for households watching repayments climb.

Sarah Hunter, the RBA's Assistant Governor (Economic), addressed that question in her interview with Adam Hegarty on 60 Minutes, recorded on 21 October and broadcast on 25 October 2026. Her answer drew on history rather than theory. Earlier approaches to controlling inflation, she said, had been tried and found wanting.

Three approaches from the past

Hunter referred to three broad alternatives that have been used in earlier decades:

  • Price controls in the 1970s, under which the prices of goods and services are restricted directly rather than left to adjust.
  • A wage freeze in the early 1980s, which seeks to hold down labour costs, and with them prices, by stopping pay rises.
  • Credit and money targeting, in which policymakers aim to control the quantity of lending or money in the economy rather than its price.

Each has an obvious appeal. Price controls promise to stop prices rising at the checkout. A wage freeze promises to break the link between pay and prices. Money targeting promises a mechanical rule for limiting the fuel for inflation.

Hunter's assessment was blunt: "What we learned through that sort of journey, none of those were particularly effective."

She did not suggest that interest rates are costless by comparison. Her argument was relative. "It's not pain-free, it's not costless, but the cost of it is less using interest rates than it would be using other tools," she said. And more simply: "there's no painless tool, but this tool does work, and that's why we use it."

Why direct controls struggle

The intuition behind Hunter's verdict is worth unpacking in general terms. Inflation, as the RBA describes it today, reflects underlying forces. Hunter identified two current challenges: an overseas oil shock, and excess domestic demand relative to what the economy can sustainably supply. Governor Michele Bullock told the Senate Economics Legislation Committee on 28 October that "we still see inflation arising from domestic capacity pressures."

Measures that suppress the symptom without addressing those forces may leave the underlying pressure in place. A cap on prices does not reduce the demand chasing goods and services. Holding down wages at a time of rising living costs falls heavily on workers whose pay already buys less. And targeting a quantity of money relies on a stable relationship between that quantity and spending.

Interest rates work differently. By raising the cost of borrowing and the reward for saving, they act on demand across the economy. "We know that higher interest rates will bring inflation down," Hunter said.

The costs the RBA accepts

The RBA has been candid that its preferred tool has real costs. Governor Bullock said at her 29 September media conference: "Those who have mortgages, yes, this clearly impacts them and it hurts them."

Hunter sought to place limits on that pain. She said most borrowers entered this period with buffers such as offset savings, and that the RBA is not seeing systemic mortgage stress. "We're not trying to put people out of their homes," she said, adding: "We're not trying to achieve a sharp stop or a really big downturn or anything like that."

The RBA's October Financial Stability Review supports the view that strain is contained in aggregate, estimating that around 2 per cent of variable-rate owner-occupiers have a cash-flow shortfall and that the median borrower can cover over a year of scheduled payments from buffers.

The cost of doing nothing

The case for rates also rests on the harm of persistent inflation. "We don't want to live with high inflation for a long time," Hunter said.

The Governor has made the same point in different words, saying in September that "high inflation hurts all Australians, especially the most vulnerable." "Pay packets don't go as far as they used to, and that's why we need to stop this high inflation." She has also warned of the risk that high inflation becomes self-reinforcing: "It's critical that we stop expectations for high inflation from becoming embedded in price-setting decisions".

That risk is live. The Governor told senators that short-term inflation expectations are elevated, and that energy prices are much higher than the RBA had assumed in August. The Australian Bureau of Statistics' September CPI, released on 28 October, showed headline inflation of 4.3 per cent and trimmed mean (underlying) inflation of 3.6 per cent, both above the 2–3 per cent target.

A related question is whether governments could do more of the work. Hunter acknowledged that government spending is part of demand and is incorporated in the RBA's forecasts. But she said that, as an independent, unelected body, the RBA should not advise on how much governments spend.

She did note that tax changes from the May budget are, alongside higher rates, having an effect on the housing market, which she said is slowing as intended.

The bottom line

Hunter's argument against the alternatives is not that interest rates are painless, but that earlier experiments with price controls, a wage freeze and money targeting were not particularly effective, and that rates do the job at a lower overall cost. It is a defence grounded in the RBA's reading of history and of the forces currently driving inflation.

That framing does not tell us what the Monetary Policy Board will do at its 3 November meeting; Hunter declined to signal the decision, and the Board has said only that it is prepared to act "including increasing the cash rate target further if needed". It does explain why, when the Board acts, the cash rate is the tool it uses. Households may find it useful to understand that reasoning when following the decision and the Statement on Monetary Policy released alongside it at 2.30 pm (AEDT).