RBA May Resume Interest Rate Hikes if Inflation Persists

Australia’s central bank may have to raise interest rates again this year if inflation does not slow, according to market analysts. This potential move would position the Reserve Bank of Australia (RBA) as an outlier in a global trend where post-pandemic rate hikes are largely concluding.

The RBA has maintained a steady policy rate for six months, with inflation expected to return to target levels next year. Governor Michele Bullock has indicated a cautious approach, aiming to reduce inflation without hampering economic growth.

Despite the steady rates, most economists and market participants predict the RBA will keep rates elevated for an extended period rather than implement additional hikes. The central bank has signalled that further tightening is unlikely, following 13 rate increases from May 2022 to November 2023, which brought borrowing costs to a 12-year high.

The RBA’s rate-setting board is scheduled to meet on June 18, with no changes anticipated. Policymakers will review upcoming economic data, including the first-quarter GDP on Wednesday and new labour market data the following week.

On Friday, Hauser, formerly of the Bank of England, will discuss Australia’s economic outlook at a conference in Sydney.

Stephen Miller, an investment strategist at GSFM in Sydney, noted that missing the second-quarter core inflation forecast could prompt a rate hike. “Those who anticipated a policy rate reduction this year may need to wait longer,” Miller said, adding that the government, which hoped for a rate cut before the upcoming election, might also need to adjust its expectations.

Australia’s next election is scheduled for May 2025.