RBA Deputy Governor Andrew Huszar said that the central bank needs to set interest rates within a range that can bring the inflation rate back to the 2-3% target level, and added that the board currently does not have “full confidence” that the inflation rate has reached the target.
The Reserve Bank of Australia’s deputy governor, in a fireside chat at an event in New York, reaffirmed that inflation in the economy is “too high” and said policymakers are working to address the income shock caused by the surge in oil prices due to the conflict in the Middle East.
Hauser said, “Interest rates must rise to the extent necessary to bring the inflation rate back to the target level. If that means rates have to go up, then so be it.”
“I wouldn’t say we are very confident about the current interest rate level, because you can never be completely sure that the rate is at the right level,” he said. “But we must keep a close eye on this new shock.”
After Hauser’s speech, the currency market’s bet on an interest rate hike at the next month’s meeting rose slightly, from 69% on Monday to 72%.
The Middle East conflict and the global energy supply shock it has triggered have exacerbated Australia’s already severe inflation situation. The Reserve Bank of Australia has raised interest rates twice this year, and there is still controversy in the market over whether it needs to raise rates again at its meeting on May 4th and 5th.
Hauser said, “Inflation in Australia is indeed too high, but the core inflation rate is about 100 basis points above the midpoint of the target, which is not much different from the core inflation rates of many other G20 members. I’m not saying this to be complacent. But on the other hand, the intensity of the policy debate in Australia (which I welcome), sometimes makes us overlook this point.”
Since the United States and Israel began to strike Iran, the price of oil has been fluctuating sharply. Since the outbreak of the conflict, the average daily fluctuation of oil prices has exceeded 9 US dollars.
In Australia, fuel prices have soared to record highs, prompting the government to announce a reduction in fuel taxes to ease inflationary pressure. Reserve Bank of Australia staff estimated last month that if crude oil prices remain around $100 a barrel, the increase in gasoline prices will directly push the overall inflation rate in the second quarter to around 5% compared with the same period last year. The Reserve Bank of Australia aims to keep the inflation rate at the midpoint of its 2% to 3% target range.
Hauser said, “This does indeed intensify the challenge we previously described, that is, to assess whether this oil shock (if it is indeed a shock) can have the same effect of slowing down the economy as interest rate hikes.”
The Reserve Bank of Australia will receive the first-quarter inflation data and updated staff forecasts in late April, both of which are crucial for the meeting next month. Additionally, the labor market data and consumer spending indicators to be released in mid-April will also be closely watched.
