Bullock Flags Rate Hike as Investors Doubt Inflation Threat

Reserve Bank governor Michele Bullock has placed an interest rate hike on the agenda for the bank's August meeting, but investors are skeptical. In her second formal speech of the year, Bullock told a charity event in Sydney that while inflation had not risen as high as feared following the surge in oil prices, it remains too high. The RBA has lifted rates three times this year, taking the official cash rate to 4.35 per cent.

Bullock said the full impact of those rate hikes had yet to work their way through the economy, but ongoing underlying inflation pressures remain a key concern for the bank's board. She warned that if demand growth isn't eased, it could entrench inflation and require further action from the RBA.

The market initially thought Bullock's speech would confirm an August rate hike, but instead, investors believe her comments suggest inflationary pressures are easing. Ahead of her speech, markets had put a one-in-three chance on an August rate hike, which is now down to one-in-five.