SYDNEY, Aug 31 Reuters Central banks had been caught napping with respect to inflation and would have to raise interest rates more aggressively as a result, extending equity market turmoil, the head of Australia39;s sovereign fund said on Wednesday.

The chair of the Future Fund, which covers pension liabilities for Australian public servants, also criticised the Reserve Bank of Australia RBA for giving wrong inflation guidance.

The rebuke from Peter Costello, a former federal treasurer, builds on criticism in Australia about the RBA39;s handling of economic shocks stemming from the COVID19 pandemic. The new centreleft Labor government has said it will hold a review into the RBA.

It39;s our belief that monetary authorities both in the U.S. and Australia were caught napping with the surge in inflation, and now the rate rises are going to have to be much more significant than if they had begun to act earlier, Costello told reporters on a call after the fund posted an annual loss on its investments.

As rates rise, over the course of this year and into next year, we would expect that equity markets will be soft, he added.

Australia came late to the tightening of monetary policy, he said. That meant that the RBA would continue to move faster and this means there will be higher unemployment as we go forward.

The RBA39;s earlier guidance that rate increases would not be needed until 2024 was wrong, he said, and the money the RBA spent buying bonds to intervene on the bond…