RBA Governor Warns Inflation Risks May Force Rate Hikes

Reserve Bank of Australia Governor Michele Bullock warned a parliamentary panel on September 18 that upside risks to inflation are materializing, potentially requiring further interest rate hikes. Bullock identified the Middle East conflict, which has sharply increased oil prices, and the global AI investment boom as primary drivers of price pressure. She noted that while the Australian economy is slowing, businesses are increasingly passing higher input costs to consumers, a trend amplified by a tight labor market.

The Reserve Bank of Australia board will meet on September 28-29 to determine if the three rate hikes already implemented this year—which brought the cash rate to 4.35%—are sufficient to return inflation to the 2%-3% target. Following Bullock's hawkish testimony, market-implied odds of a September 29 rate hike surged to 93%, with some analysts predicting a terminal rate of 4.85% by early 2027.

The Australian Dollar rose 0.3% against the U.S. Dollar to 0.7129 following the remarks. This gain was supported by a softening U.S. Dollar, though Federal Reserve Chair Kevin Warsh indicated that further hikes in the United States remain possible. Deputy Governor Andrew Hauser added that global growth forecasts have been repeatedly surprised on the upside, particularly in the Asia Pacific region.