The Reserve Bank of Australia's “No. 2 Person” warns that if inflation is difficult to ease, interest rates may rise again

The Zhitong Finance App learned that Australian Federal Reserve Vice Chairman Andrew Hauser (Andrew Hauser) said that if the risk of rising inflation becomes a reality and consumer prices do not fall back, it will be necessary for the Federal Reserve to raise interest rates again.

“Despite our conclusion last week that the current interest rate level is appropriate, we are still concerned about the outlook for inflation and remain highly alert to the upward risks faced by inflation,” the RBA's No. 2 figure said during a fireside conversation in Brisbane on Wednesday.

Last week, the Reserve Bank of Australia decided to keep the interest rate unchanged at 4.35% during the second interest rate meeting. This is the second time in a row that it has remained on hold.

Currently, Australia is once again facing rising inflationary pressure, and this problem became apparent even before the US and Israel launched attacks on Iran, triggering a global energy shock. Although the consumer price index for the previous quarter was slightly lower than expected, it was still well above the midpoint of the 2%-3% target range — a level that the Reserve Bank of Australia had not reached for almost five years.

Hauser said, “If the upward risk of inflation comes true, and we do not see a fall in price, then we will have to raise interest rates again and act decisively.” This statement is similar to what Chairman Michelle Bullock said last week after the policy meeting.

In its newly released quarterly economic outlook, the Reserve Bank of Australia predicts that the inflation rate will not fall back to the target level of 2.5% until early 2028.

At the first three interest rate meetings this year, the Federal Reserve chose to raise interest rates to curb the pace of price increases. According to money market data, the market expects the probability of raising interest rates again before December is about two-thirds, but most economists expect the Reserve Bank of Australia to stand still for the rest of the year.

This time, Hauser was speaking at the Queensland Futures Institute's annual regional summit, during which he was also asked about housing shortages in the state and across the country.

“Australia needs more housing, and so does Queensland,” he admits.

“What's interesting is that when you look at the data, people often say 'Australia's ability to build a home' is not true,” Hauser said. “On a per capita basis, the number of newly built homes in Australia is actually higher than most countries, but it's still not enough to meet demand.”

When talking about weak housing prices in recent months, Hauser reiterated that despite the recent drop in prices, they are still about 50% higher than during the pandemic.