Hauser’s hawkish inflation warnings have pushed markets toward expecting a possible RBA rate hike as soon as the March meeting.
- RBA policymaker Hauser says oil price and Middle East volatility is a "genuine challenge"
- ICYMI: RBA’s Hauser warns oil price risks could intensify rate rise debate (March 17 live)
Summary:
RBA Deputy Governor Andrew Hauser warned oil price shocks pose upside risks to inflation amid uncertainty tied to the Iran conflict.
He said there will be “genuine policy debate” at the next RBA board meeting, with arguments on both sides.
Market pricing now implies roughly a 70% chance of a rate hike at the March 17 meeting.
Westpac, NAB, Citi and Deutsche Bank now expect hikes in March and May.
Bank of America, UBS and Capital Economics also forecast a hike at next week’s meeting.
Reserve Bank of Australia Deputy Governor Andrew Hauser’s latest remarks have sharpened expectations that the central bank’s upcoming policy meeting could be more consequential than previously assumed, with markets now increasingly pricing in the possibility of a near-term rate hike.
Speaking on Tuesday, Hauser highlighted the inflation risks stemming from surging oil prices tied to geopolitical tensions involving Iran, while emphasising that the central bank’s response will depend on how persistent the shock proves to be.
“Our response depends on the size and persistence of the price shock,” he said, noting that the outlook remains uncertain given rapidly evolving geopolitical developments.
Despite that uncertainty, Hauser’s tone underscored the RBA’s continued focus on preventing inflation expectations from becoming unanchored. He warned that failing to act decisively if inflation proves persistent would risk repeating the damaging experience of the recent inflation surge.
“If we fail to act decisively enough to prevent inflation staying high or even rising and expectations of inflation disanchor… it will be bad for everyone,” he said, describing inflation as “toxic” for the economy.
Hauser also pointed to signs that Australia’s economy is operating close to its limits, noting that recent data has reinforced the view that spare capacity in the economy is limited. Annual GDP growth of 2.6% exceeds the RBA’s estimate of roughly 2% sustainable growth, suggesting demand may still be running ahead of the economy’s underlying capacity.
While he acknowledged some areas of the economy have been softer — particularly household consumption — Hauser said the broader economic picture remains solid.
“The Australian economy in many ways is in good shape,” he said.
The remarks have triggered a noticeable shift in market expectations around the RBA’s next move. Interest-rate markets now imply roughly a 70% probability of a rate hike at the March 17 policy meeting, compared with far lower odds before Hauser’s comments.
Several major banks have also adjusted their forecasts. Westpac, National Australia Bank, Citi and Deutsche Bank now expect the RBA to deliver rate hikes in both March and May. Meanwhile, Bank of America, UBS and Capital Economics have recently moved to predict a rate increase at next week’s meeting.
Before the latest developments, many analysts had expected the RBA to remain on hold in March, partly because policymakers had emphasised the importance of monitoring further inflation data before adjusting policy.
However, the sharp rise in global oil prices linked to the Middle East conflict has complicated that outlook. Higher energy costs pose a clear upside risk to inflation, though Hauser noted that Australia’s status as a net energy exporter could provide some offsetting support to economic activity through stronger export demand.
With the RBA’s next decision approaching, policymakers now appear to face a delicate balancing act between managing geopolitical inflation risks and ensuring monetary policy remains appropriately calibrated to domestic economic conditions.
