Reserve Bank of Australia Governor Michele Bullock said risks that inflation could remain too high may be materialising. She pointed to elevated energy costs and demand that was still running ahead of the economy's capacity. The cash rate stands at 4.35% after 75 basis points of increases since February. Bullock did not commit the board to a decision before its 29 September meeting.
Australia's trimmed-mean inflation rate was 3.6%, above the central bank's 2%–3% target range. Bullock said unemployment, at 4.5%, might need to rise slightly for the labour market to return to balance. Her comments came as households and businesses continued to absorb higher borrowing and energy costs.
MARKETS EXPECT ANOTHER INCREASE
Interest-rate futures reflected a 95% probability that the RBA would raise the cash rate by 25 basis points to 4.60% at the September meeting, Reuters reported. That pricing followed renewed concern that price pressures were proving more persistent than policymakers had expected.
Bullock said the board would assess incoming data and the balance of risks rather than pre-judge the meeting. She also argued that demand restraint, not only supply improvements, may be required to return inflation sustainably to target.
BANKS FACE A POLICY TEST
A further increase would lift funding and repayment pressure across Australian lenders' mortgage and business-loan books. The policy question is whether tighter financial conditions can cool demand without producing a sharper deterioration in employment or credit quality.
The board's decision on 29 September is the next milestone, followed by guidance on the inflation and labour-market path. Until then, market pricing remains conditional on new data and does not amount to a confirmed rate increase.