Australian Central Bank Warns of Potential Further Rate Hikes

Australian Reserve Bank Assistant Governor Christopher Kent has cautioned that interest rates may need to rise further if certain conditions do not materialize. Speaking at a Reuters NEXT Newsmaker event in Sydney, Kent emphasized that inflation threats remain on the upside and that 'a lot of things' would need to go right for rates to be on hold.

According to Kent, the current cash rate of 4.35% is considered somewhat restrictive, but uncertainties remain. He highlighted two key conditions that must be met: a timely opening of the Strait of Hormuz and an increase in productivity growth.

The Reserve Bank of Australia (RBA) has already hiked interest rates by 75 basis points since February to combat stubborn inflationary pressures. Markets imply around a 54% chance of another rate hike to 4.60% by December, although investors assume this will likely mark the end of the tightening cycle.

Kent also noted that the three previous rate hikes have been working as intended to slow down demand. He pointed out that financial conditions are becoming increasingly restrictive, with a noticeable decline in new home lending and property price falls leading to slower housing credit growth.