Australia's central bank is banking on the Phillips Curve relationship between inflation and unemployment to justify its aggressive monetary tightening cycle. Deputy Governor Andrew Hauser argued that being on the steeper part of this curve means rate hikes can reduce inflationary pressures without severe job losses.

The Reserve Bank paused its hiking cycle last week, holding the cash rate at 4.35% while forecasting inflation will return to the 2-3% target midpoint by mid-2028. Unemployment is expected to peak at 4.7% during the same period. Hauser explained that February and March rate increases responded to rapid demand growth and supply constraints that steepened the Phillips Curve.

Concerns about potential Iranian supply shocks initially drove tighter policy in May, though recent diplomatic progress has eased some pressures. The reopening of the Strait of Hormuz and lower global oil prices provide some relief, though Hauser cautioned that resolution remains uncertain.

Despite these improvements, the RBA maintains that inflation remains 'far too high' and further work is needed to bring it down. The bank's strategy reflects confidence that its Phillips Curve framework will deliver the soft landing it seeks.