Reserve Bank Governor Michele Bullock has warned that even if the war between the US and Iran ends soon, underlying inflation is still expected to be higher as fuel price rises flow through to other prices. The Reserve Bank Board therefore is not ruling out more interest rate pain for Australian mortgage holders, after already hiking three times this year, taking the official cash rate to 4.35 per cent.
Board Prepared to Act
Speaking to the Anika Foundation fundraising lunch in Sydney on Tuesday, Bullock said the Reserve Bank was prepared to lift rates if needed. "The best contribution monetary policy can make is to maintain low and stable inflation and support sustainable full employment," she said. "The Board is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed."
Inflation Data Due
Key June inflation data will be released on Wednesday. In May, headline inflation was sitting at 4 per cent and underlying inflation at 3.6 per cent. Both figures were well above the central bank's target for inflation, which is between 2 and 3 per cent. Bullock also conceded Australia started the oil crisis at a disadvantage due to domestic economic conditions. "It's also important to remember that inflation and capacity pressures in the domestic economy were already too high prior to the recent shock," Bullock said.
Outlook and Next Meeting
Bullock noted that there is evidence that domestic demand and labour market conditions have been easing as required to bring the economy back towards balance. The next Reserve Bank Board meeting is on August 10 and 11, with a decision on rates to be handed down on the Tuesday. The stock market's prediction of a rate hike then is sitting at 28 per cent.
