It’s the $10 trillion question facing the Australian economy after the Reserve Bank’s rate rise: how much pain is the central bank prepared to accept in the country’s highly indebted housing market to get inflation back under control?

Ian Macfarlane, the former RBA governor who was responsible for introducing Australia’s inflation target in 1996, says the central bank will need to walk a very fine line, but argues it cannot give up the fight because of the potential damage that higher rates will do to those who have bought homes in the past 12 months.