RBA must decide if rate sufficient to cool prices: Governor
Australia’s central bank kept the key interest rate unchanged at 4.35% in August
The Reserve Bank of Australia (RBA) maintained the key interest rate at 4.35% in August, according to the bank's governor, Michele Bullock. Bullock indicated that the Monetary Policy Board will meet in a week's time to discuss the effectiveness of the current rate in curbing inflation and bringing it back to target. The central bank's decision to keep rates unchanged is a topic of concern for officials, who are worried about the persistent high inflation and its impact on Australians with mortgages and other cost-of-living pressures.
Bullock acknowledged the difficulties faced by Australians with high-interest debt but emphasized the importance of reducing inflation. The RBA's August forecasts indicated that while the economy is slowing, certain risks to inflation are materializing. Global factors, including the Middle East conflict, the AI boom, and extreme weather events, have contributed to upward pressure on energy, agricultural, and technology-related prices.
Swaps markets currently price in at least two more RBA rate hikes by February, with a more than 80% chance of the first hike occurring on September 29. The governor highlighted the uncertainty surrounding the US-Iran war, which has driven up energy prices. Tensions have flared in the Persian Gulf and the Strait of Hormuz, with Saudi Arabia facing pressure from Houthi militants in Yemen.
Brent crude prices have surged above US$100 per barrel, raising concerns about energy-linked inflation pressures. Bullock noted that firms are passing on higher input costs, a concern that has been anticipated but must be contained to prevent it from becoming embedded in price and wage-setting decisions.
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