Interest rate guidance for homeowners and other borrowers has been miscommunicated and ultimately wrong, leading to growing calls for a full-scale review into the Reserve Bank.
After the third consecutive rate rise since May, economists have voiced concerns the bank's current structure is not fit-for-purpose and argued forward guidance throughout the pandemic has been "suboptimal".
On Tuesday, the RBA hiked the official cash rate by 50 basis points to 1.35 per cent in a bid to combat rising inflation which Governor Philip Lowe anticipates may reach an annual rate of 7 per cent by the end of the year.
Dr Lowe and the board had initially forecasted rates were unlikely to rise until at least 2024.
Australia's big four banks passed on the 50 basis point hike on Wednesday.
Supply constraints and the war in Ukraine causing a spike in commodity prices have contributed to the higher inflation environment globally.
But economist Steven Hamilton flagged inflationary pressures had been evident before the Ukraine crisis and noted the RBA failed to publicly present a range of outcomes in forward statements.
"It's appropriate for the RBA to communicate its forecast, its expectations and how it sees interest rates based on those forecasts. But what they also needed to do was to provide some additional context," Dr Hamilton told ACM.
"They never laid out any sort of contingency.
"They didn't really flesh out the full range of possibilities and I think that's a problem."
The RBA during the pandemic dropped the cash rate to 0.1 per cent to ease pressure on the economy and also invoked a number of quantitative easing measures, including bond buying which was designed to pump more liquidity into financial markets.
Three year treasury bonds were the target of the RBA's QE measures, which Dr Hamilton said influenced the initial 2024 forecast.
"Not only did they say 2024 but they put their money where their mouth is by targeting very low yields in 2024 dated bonds," he said.
Dr Hamilton highlighted the RBA's exit from the yield curve program was messy and the confusion brought on by the forward guidance has tested the bank's creditability.
"The exit out of the yield curve control program was extremely messy," he said.
"That is all tied together into one big bundle of really suboptimal forward guidance that I think led to confusion and undermined the bank's credibility."
A letter to Treasurer Jim Chalmers cosigned by a number of economists including Dr Hamilton, had urged for the government to implement an independent review of the RBA.
ANU economist and fellow cosigner of the letter, Warwick McKibben outlined governance of the bank would be central to a review, but flagged it needs to be forward looking.
Dr McKibben said the current structure is not well equipped with dealing with rising climate risks.
"I think going forward, they've got the wrong governance structure to deal with the volatility that's going to come out of climate events and climate policy transition that we have to go through as a country," he said.
Economists are also pushing for more independent experts on the board which specialise in microeconomic and macroeconomic policy.
"I think that you want to have a different structure," Dr McKibben said.
"You want to have better communication. You want to have more transparency. You want to have more experts on the board."
The RBA is expected to hike rates again in August with expectations the cash rate will hit 3 per cent by December.
