Reserve Bank of Australia deputy governor Andrew Hauser hints at November 3 rate rise on Melbourne Cup day
Andrew Hauser said the situation in the Middle East and the outlook for inflation was looking a lot worse than feared as recently as August.
The Reserve Bank of Australia’s deputy governor Andrew Hauser has strongly hinted a November interest rate rise was looking more likely because the situation in the Middle East was worse than feared less than three months ago.
While futures market isn’t tipping a Melbourne Cup day rate rise, Mr Hauser said the outlook for inflation had deteriorated since the RBA released its August statement on monetary policy.
“A few things are clear: the inflation outlook looks materially worse than we projected in the August report,” he told Citi’s Australia and New Zealand Investment Conference in Sydney on Wednesday.
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By continuing you agree to our Terms and Privacy Policy.“On the Middle East, oil prices are even higher, about a third higher than we assumed in the August projection.
“So, the Middle East picture looks worse, we’re seeing higher AI, tech prices feeding through into CPI, not just here but elsewhere.
“We’re continuing to have this extraordinary sequence of positive demand shocks around the world and we’re having a boom in data centre construction here in Australia as well.”
The RBA’s liaison with business is also suggesting waning community confidence in the central bank’s ability to bring inflation back within the band.
“The basic fact is that inflation has been high for a very long time now and we are beginning to see some signs that some people in the community are not sure if we’re going to bring inflation back into target at all or certainly not for an extended period,” Mr Hauser said.
He added that a Macquarie University survey showing an increasing share of businesses expecting inflation becoming embedded at 3-3.5 per cent was “a central banker’s nightmare”.
“We can’t allow expectations to shift away from the target,” he said.
Updated forecasts on inflation and unemployment are also being released at the RBA’s next monetary policy board decision on November 3.
The Reserve Bank unanimously voted to raise the cash rate to a 15-year high of 4.6 per cent at its September meeting.
The meeting was made on September 29, a day before the Australian Bureau of Statistics revealed inflation in August grew at an annual pace of 4 per cent, marking the 13th straight month of the consumer price index being above the RBA’s 2-3 per cent target.
Updated data since then has also shown unemployment in September climbing to a five-year high of 4.7 per cent.
“And then on domestic capacity pressures, as well, inflation’s been coming in at or a little bit above expectations despite an apparent easing in the labour market,” Mr Hauser said.
