A rapidly ageing population is undermining the effectiveness of the Reserve Bank of Australia’s sole policy lever, economic experts are warning, prompting fresh calls for a rethink of how the nation manages inflation and employment.
A detailed analysis of demographic and economic data by the University of Tasmania suggests the RBA’s reliance on interest rates to guide household spending and investment is increasingly mismatched to the nation Australia has become.
While a major 2023 review delivered 51 recommendations to make the Bank “fit for the future”, critics say it overlooked a fundamental shift: the population has grown older, wealthier and far more insulated from rate movements. The consequence, they argue, is an RBA framework “no longer fit for purpose”.
According to the study, when the RBA was established in 1959, Australia was young, both economically and demographically. Most people were either in school or working, and rising education levels, industrialisation and workforce participation fuelled strong economic growth. Home ownership surged, becoming the foundation of the ‘great Australian dream’.
For decades, monetary policy fit this demographic profile well. By the 1990s, more than half of Australians held mortgages. When the RBA moved interest rates, households felt it – directly and immediately. Higher rates squeezed budgets, lower rates encouraged spending, and the central bank could reliably influence the broader economy.
But that era has passed. Baby boomers built wealth, and immunity to rate rises.
The post-war baby boomers, who once carried the bulk of the nation’s mortgage debt, are now entering or already in retirement with high levels of wealth, secure housing and tax-free superannuation income.
Census data shows 61.9% of Australians over 60 own their homes outright. Many also draw superannuation pensions that provide stable, tax-free income unaffected by interest rate changes. In fact, higher interest rates can actually increase retirees’ spending power through improved returns on savings and term deposits.
For the RBA, this creates a profound challenge: a large and growing share of the population is now effectively immune to interest rate adjustments.
With the number of Australians aged 65 and over increasing by 437% since 1960, and continuing to rise, this insensitivity to monetary policy is only expanding.
The burden of RBA rate moves now rests disproportionately on a shrinking group: younger, working families with mortgages. These households feel every increase, with rising repayments pulling money out of budgets already stretched by inflation.
Meanwhile, older Australians’ spending on recreation, leisure, health and intergenerational support, such as helping adult children with larger expenses, continues largely unaffected by rate hikes.
This mismatch, critics say, undermines the RBA’s ability to meet its core legislative purpose, which is to promote “the economic prosperity and welfare of the Australian people”.
The University of Tasmania study features warnings from economists that say Australia’s demographic transformation requires structural reform beyond the RBA’s remit. If interest rates can no longer effectively steer the economy, other policy levers must be used.
They argue that reforms to tax, wealth, housing and intergenerational transfers should be prioritised to restore balance and ensure prosperity is shared across generations.
Without integrating demographic realities into economic and social policymaking, they caution, Australia risks locking in inequity, and leaving future workers and families worse off.
As the nation grows older, the question is no longer whether the RBA should adapt, but whether interest rates alone can ever be enough to manage a modern, ageing economy.
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