RBA’s Hauser: Will have to raise rates again if inflation doesn’t come down

Reserve Bank of Australia Deputy Governor Andrew Hauser stated that inflation remains at an elevated level and the central bank must raise interest rates to curb price pressures. Monetary policy aims to lower inflation and reduce demand within the economy. Hauser expressed concern about inflation, indicating that if it does not decrease, further rate hikes will be necessary.

The Australian Dollar (AUD) experienced a marginal decline following Hauser's comments, trading 0.1% lower against the US Dollar, currently at approximately 0.7078. The Reserve Bank of Australia (RBA) is responsible for setting interest rates and managing monetary policy in Australia, with decisions made by a board of governors during 11 meetings annually, as well as emergency meetings when required.

The RBA's main objective is to maintain price stability, targeting an inflation rate of 2-3%, while also promoting currency stability, full employment, and economic prosperity for Australians. The primary tool for achieving this goal is adjusting interest rates—higher rates strengthen the AUD, while lower rates weaken it. Contemporary views on inflation suggest that moderate inflation can be favorable for currencies, as it encourages central banks to raise interest rates, attracting global capital inflows and increasing demand for the domestic currency.

Factors such as GDP, manufacturing and services PMIs, employment data, and consumer sentiment surveys can influence the value of the Australian Dollar (AUD). A robust economy may prompt the Reserve Bank of Australia to raise interest rates, further bolstering the AUD. In extreme situations, when lowering interest rates is insufficient to stimulate credit flow, the RBA may employ Quantitative Easing (QE), buying assets like government or corporate bonds to inject liquidity into the financial system.

QE typically results in a weaker AUD. Conversely, Quantitative Tightening (QT) occurs after an economic recovery, when inflation begins to rise; in this case, the RBA stops purchasing assets and ceases reinvesting principal maturing on existing bonds, potentially benefiting the AUD.