Australia Central Banker Warns of Higher Inflation Risks and Potential Rate Hikes

Australia's central banker has warned of further rate increases, citing inflation risks as 'leaning very much to the upside'. Reserve Bank of Australia Assistant Governor Christopher Kent said that uncertainties remain and that a cash rate of 4.35% is 'somewhat' restrictive. He noted that 'a lot of things' would need to go right for rates to be on hold, including the Strait of Hormuz opening up in reasonable time and productivity growth picking up.

Kent also stated that interest rates may need to rise further if these conditions fail to materialise. The RBA left interest rates steady at 4.35% for a second meeting, having already hiked by 75 basis points since February. Markets imply around a 54% chance of a further increase to 4.60% by December.

The Assistant Governor gave an update on financial conditions, noting that the three rate hikes were working as intended to slow down demand. He also mentioned that housing credit growth has started to slow, with a noticeable decline in new home lending, which will in time start to discourage spending.