RBA official flags possible fourth rate hike if inflation persists

Australia's central bank may be forced to raise interest rates for a fourth time this year if inflation continues to run hotter than anticipated, a senior official said on Tuesday.

Speaking at a property conference, Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter said the policy board remains focused on bringing price pressures under control, even as it seeks to cool the economy through higher borrowing costs.

"I think the board has been pretty clear...that inflation is a top priority right now," said Hunter, who leads the RBA's economics unit. "We are concerned about inflation and if there is a sense that inflation is going to be stronger...the board may well have to raise interest rates for that."

The remarks come after a stubbornly high inflation reading for July prompted markets to sharply raise their bets on another hike. Traders now assign a 70% probability that the RBA will lift its cash rate by 25 basis points to 4.60% at its September 29 policy meeting, up from less than 10% a month ago. Futures markets also see a 60% chance rates will climb to 4.85% next year.

Fresh survey data underscored the toll that rate concerns and rising fuel costs — linked to the conflict in the Gulf — are taking on confidence. A NAB measure of business conditions sank to six-year lows in August amid a broad squeeze on profit margins, while a Westpac-MI index of consumer sentiment reversed sharply in September.

Hunter said the RBA wants to see a softening in consumer demand to bring it more in line with constrained supply. She noted that past rate rises have already slowed the housing market and pushed prices lower in most major cities, but she did not expect a "recession or anything like that."