Andrew Hauser: Monetary policy in a VUCA World

Speech by Mr Andrew Hauser, Deputy Governor of the Reserve Bank of Australia, at the Australian Financial Review Business Summit, Sydney, 5 March 2025.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

In the late 1980s, as the Iron Curtain fell, the US Army War College threw away its old Cold War playbook. In its place, trainee strategists were taught to see the world as Volatile, Uncertain, Complex and Ambiguous: or 'VUCA' for short. The implications were far-reaching. Out went the old certainties. And in came a new approach that stressed the importance of approaching problems from different angles, drawing on multiple perspectives and scenarios, learning from mistakes, making robust decisions, and communicating openly about the uncertainties.

Where the military began, the business world followed: VUCA begat a million Harvard Business Review articles. Inevitably perhaps, it lost some of its shine in the decades that followed. But today it's back – with a vengeance. The rules of global trade have been turned on their head. New geopolitical realities are dawning. Artificial intelligence, the energy transition, demographic change and the long shadow of COVID-19 are fundamentally changing our concepts of economic activity and work. And Australia, like elsewhere, is seeking new sources of productivity growth. With the world in flux, companies, households and governments must change how they think, act and plan – just like those army cadets of the 1980s.

Monetary policy cannot affect these profound changes. But it does have one key job – and that is to ensure that, of all the things people do have to worry about, inflation is not one. High inflation hurts everyone. It hits living standards, particularly for those on low and fixed incomes. And it disrupts households and companies' plans. The past few years have been a vivid reminder of that. Around the world, core inflation reached multi-decade highs (Graph 1).