RBA Governor Warns of Further Interest Rate Hikes

Reserve Bank of Australia Governor Michele Bullock warned that additional interest rate hikes may be necessary to control inflation, which she described as "still too high." Speaking at a charity event in Sydney, Bullock stated that an interest rate hike is on the agenda for the board's August 10-11 meeting. She noted that while demand growth has moderated following three rate increases since February, underlying inflation remains a risk as fuel price increases flow through to other costs.

Bullock highlighted that stagnant productivity growth since 2021 is constraining the economy's ability to grow without generating inflation, which in turn limits real wage growth for Australians. She maintained a conditional tightening bias, stating the board is prepared to act as required to achieve its mandate. She cautioned that it is premature to determine if current settings are sufficiently restrictive as the full effects of previous hikes have not yet materialized.

These warnings follow reports from the Australian Treasury to Treasurer Jim Chalmers regarding elevated oil prices driven by a conflict between the United States and Iran over the Strait of Hormuz and Houthi threats in the Red Sea. Chalmers characterized the escalation as a "substantial threat to global inflation." Additionally, Foreign Minister Penny Wong indicated the government will proceed with ending a 16¢-a-litre fuel excise cut starting next week. Despite the hawkish signals, the ASX200 reached a 20-day high as investors anticipate a slowing property market will reduce inflationary pressures.