RBA Governor Warns Inflation Risks Materializing Amid AI Boom

Australia's central bank governor Michele Bullock warned that inflation risks are materializing due to the Middle East conflict and the AI boom. Speaking to lawmakers, Bullock stated that some of the upside risks to inflation flagged by policymakers have begun to take shape.

According to Bullock, a key question facing policymakers is whether three rate hikes this year, bringing the cash rate to 4.35%, will be enough to bring inflation back to its 2%-3% target. 'It may be the same rate is enough to do that,' said Bullock.

The Reserve Bank of Australia (RBA) held interest rates steady for a second meeting in August, but warned that rates could go higher as it singled out several risks to inflation. Bullock noted that developments since then suggest that although growth in the Australian economy is slowing, some of these upside risks appear to be materializing.

Market expectations imply a 93% chance the RBA will lift rates for a fourth time this year to 4.6% when it meets on September 28-29, and reach 4.85% by early 2027. Bullock also acknowledged that the housing market has softened more than expected, but said financial stability risks from the drop in house prices are contained.