‘May have to raise’: RBA’s bluntest warning yet an interest rate hike may be coming

A senior Reserve Bank of Australia (RBA) official has admitted the central bank has increasing concerns about inflation, and given the clearest indication yet that another interest rate rise could be handed down this year.

The RBA has delivered three rate rises this year and the cash rate is sitting at 4.35 per cent.

And while headline inflation slowed to 3.5 per cent for the year to July, it was still higher than economists expected, reigniting fears of another rate hike.

Speaking at the Australian Financial Review’s Property Summit on Tuesday, RBA assistant governor Sarah Hunter said if inflation continues to sit outside the 2-3 per cent target band, there would be less wiggle room to avoid a rate hike.

“We are definitely concerned,” she said.

“If there is a sense that inflation is going to be stronger than we think in the context of our forecast, the board may well have to raise interest rates to tackle that.

“I think the board has been pretty clear, and the staff as well. I’m certainly myself pretty clear that inflation is top priority right now – inflation is above target, and has been for some time.”

The biggest drivers to the higher-than-expected inflation numbers were the cost of housing, annual food inflation – driven by meals out and takeaway – and the continuing high cost of oil, caused by the Middle East war.

The continuing conflict is causing petrol prices to remain high, which is a factor Hunter pointed out as a significant inflationary pressure.

“That was one of those risks, and we are definitely concerned about that given recent moves,” Hunter said.

A small rise in Australia’s GDP last quarter could also add to the chances of a rate hike this year.

Hunter did temper her comments by saying that the data was just from on one month, and that given the volatile economic climate, it could change again and provide a more positive outlook.

However, she reiterated the RBA’s primary concern was to keep inflation down.

“[The board] have been pretty clear that they don’t really have tolerance for inflation to continue to be … above target for an extended period,” she said.

Her comments came as Westpac joined ANZ and CBA in predicting a rate hike is likely to occur in November.

The likelihood of an additional rate hike has risen enough to make a November hike… the base case again,” chief economist Luci Ellis said on Tuesday.

She did not rule out the possibility of a rate hike when the RBA hands down its next decision on September 29.

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“Tactically, we believe RBA leadership would strongly favour a November hike over September,” she said.

“Overreacting to a noisy monthly print is something they have previously said they would not do.

“That said, if the internal members felt the situation was more urgent and wanted to get the hike done in September, we believe they could muster a majority of the Monetary Policy Board [to] vote in favour.”

The other big four bank, NAB, is forecasting a rate hike in September.

Ellis said there would likely not be concrete rate relief for millions of Australians until August 2027, which she believes will be the first of three rate cuts.

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