Highlights

  • The RBA reduced its short-term non-farm productivity growth assumption from 1% to 0.7%, Hauser said.
  • He described measured productivity growth as being around zero at present.
  • The Deputy Governor discussed business investment, technology adoption and the relationship between productivity and inflation pressure.

Australia's capacity to produce goods and services without adding to inflation was a prominent issue in remarks by Reserve Bank of Australia Deputy Governor Andrew Hauser on 21 October 2026. During a Sydney investment conference, he discussed weaker productivity growth, the Bank's forecasting assumptions and the consequences of demand growing faster than the economy's capacity.

The comments were offered in response to a question about unit labour costs and whether weaker productivity required monetary policy to remain restrictive for longer. Hauser said the relationship was not automatic.

RBA Adjusts Its Near-Term Assumption

Hauser explained that the RBA had reduced its near-term assumption for non-farm productivity growth from 1% to 0.7%. He said the Bank was struggling even to reach the revised rate, describing current measured growth as roughly zero.

He noted that the RBA's forecasting horizon focused on inflation over the next couple of years rather than long-term structural projections. The 0.7% figure therefore represented a working assumption for the forecast period, not a definitive estimate of Australia's permanent productivity potential.

Why Productivity Matters for Inflation

The Deputy Governor linked productivity to the economy's capacity to expand without putting pressure on prices. If productive capacity rises slowly while spending continues at a faster pace, businesses can face constraints in meeting demand.

Hauser suggested that a mismatch could arise when expectations about economic growth remained anchored to a previously faster pace. In that situation, spending and business decisions might continue to reflect capacity that the economy was not delivering. He did not say that weaker productivity, by itself, necessarily implied permanently higher policy rates.

Business Investment and Technology Adoption

Responding to a later question about improving productivity, Hauser described low business investment as a broad international issue outside the United States. He said the causes could not be reduced to regulation alone, because many countries with weak investment had different regulatory arrangements.

He identified technology adoption and business participation as relevant to the productivity debate. In particular, he said Australia needed to understand and adapt to artificial intelligence and other developments in global technology. His remarks were general observations about economic adjustment, not an announcement of government policy.

Different Interest-Rate Implications

Hauser described several possible relationships between lower productivity and interest rates. If spending expectations failed to adjust to weaker growth in capacity, policy might need to be tighter than otherwise. Under different conditions, he said lower productivity could be associated with lower real interest rates over time.

That distinction was part of his explanation of why productivity and monetary policy could not be linked through a single rule. The RBA was also reassessing domestic capacity pressures through its forecasting process and information from businesses.

Key Insights

The Deputy Governor described productivity as an important constraint on Australia's non-inflationary growth rate. The RBA's 0.7% near-term non-farm productivity assumption, alongside measured growth around zero, formed the numerical basis of his remarks. The speech did not prescribe specific reforms or a future interest-rate path.