RBA deputy warns of worse inflation outlook, raising rate hike odds

Summarised from 2 outlets · Updated 21 Oct, 06:32 · Archive

The Reserve Bank's deputy governor says inflation is worse than expected, raising the chances of a fifth rate rise on Melbourne Cup day.

Andrew Hauser, the Reserve Bank's deputy governor, warned on Wednesday that Australia's inflation outlook had deteriorated significantly, raising the prospect of another interest rate hike on Melbourne Cup day, 3 November. His comments at an investment bank conference in Sydney pushed market odds of a rate rise that day from 30 per cent to 45 per cent. If delivered, it would be the fifth increase this year, taking the official cash rate to 4.85 per cent, its highest level since the global financial crisis.

Hauser said the RBA faced 'hard choices' in balancing concerns about entrenched inflation with protecting the labour market. He noted that the community was beginning to lose faith in the central bank's ability to bring inflation back to its 2.5 per cent target. A worsening Middle East conflict has pushed inflation to 4 per cent in the year to August, and businesses are starting to view 3.5 per cent as the 'new normal', he said. Removing such entrenched inflation psychology could require higher interest rates.

Diana Mousina, AMP's deputy chief economist, cautioned that another rate rise was not certain. The Australian share market declined following Hauser's comments, with the S&P/ASX200 falling 0.19 per cent on Wednesday lunchtime. Betashares chief economist David Bassanese suggested the RBA had lost patience with inflation and was now willing to risk recession to bring it down, though he did not think the market's 40 to 45 per cent pricing of a hike fully reflected this risk.

How it is being reported

• Aussie mortgage holders brace for possible Melbourne Cup Day rate hike after fresh RBA warningRBA deputy governor Andrew Hauser has said the inflation outlook was 'materially worse' than the central bank had forecast.Daily Mail · 21 Oct, 06:18
• Odds of fifth interest rate hike this year likely to shorten as RBA deputy warns inflation outlook ‘worsening’Andrew Hauser says the central bank faces ‘hard choices’ as it looks to balance the risks of entrenched inflation with the desire to protect the labour market Andrew Hauser, the Reserve Bank’s deputy governor, has reignited talk of a fifth interest rate hike on Melbourne Cup day, warning of “hard choices” ahead in response to an inflation outlook that “looks materially worse” than the central bank had expected two months ago. Hauser, speaking at an investment bank conference in Sydney on Wednesday morning, said the RBA monetary policy board members were juggling a slowing economy with fears…Guardian World · 21 Oct, 00:19

In this story: Andrew Hauser · Reserve Bank of Australia · Australia

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