RBA Economist Signals Possible Rate Hike as Inflation Stays High

Australia's central bank may need to raise interest rates for a fourth time this year to bring inflation under control, Reserve Bank of Australia Assistant Governor Sarah Hunter has said, reinforcing market expectations of a move as soon as next week.

Speaking on a podcast, Hunter, who heads the RBA's economics unit, said the policy board was concerned that inflation had remained too high for too long and risked becoming entrenched in how businesses set prices.

"We can see lots of reasons why inflation might be a bit higher than what we currently think," she said, pointing to higher energy costs linked to the Middle East conflict and signs that domestic demand was outpacing supply.

She added that the board might conclude it has to raise the cash rate again to slow the economy a little further and address those pressures.

The RBA has lifted rates by 75 basis points since February, taking the cash rate to a post-pandemic high of 4.35%. Core inflation, however, is still running at 3.6%, above the central bank's target range of 2% to 3%.

Markets have priced in a 95% chance that the board will raise rates to 4.60% at its September 29 meeting, and expect the cash rate to peak at 4.85% by early next year.

Hunter said the central bank expects and hopes inflation will ease, but that several conditions need to fall into place for that to happen. "We'll see how we go over the next few months," she said.