RBA May Hike Interest Rates Amid Ongoing Middle East Conflict and Oil Price Surge

Rising oil prices and ongoing Middle East conflict have led to a grim warning for borrowers in Australia. The Reserve Bank of Australia (RBA) may need to raise interest rates if inflation exceeds its forecasts, according to RBA assistant governor Sarah Hunter.

The Brent crude price has surged above US$97 a barrel, driving up domestic petrol and diesel prices as well as broader cost pressures for businesses.

Russel Chesler, head of investments and capital markets at VanEck, expects oil prices to remain higher for longer due to the ongoing conflict. 'The continuing Middle East conflict is showing no signs of resolution and that will leave the RBA with no choice but to increase rates at its meeting later this month,' he said.

Assistant governor Hunter stated that inflation is a top priority for the RBA, which is currently above target. 'We are concerned about inflation and if there is a sense that inflation is going to be stronger than we think in the context of our forecast, then the board may well have to raise interest rates to tackle that,' she said.

Business conditions took a hit in August, with profitability falling 10 points to its lowest level since the pandemic. Ongoing price pressures from the Middle East conflict are taking their toll on businesses, particularly in manufacturing, construction, and retail.