RBA Rate Hike Odds Jump as Strong Data Fuels Inflation Fears

The odds of an interest rate hike by the Reserve Bank of Australia (RBA) in March have increased to one-in-three, according to IG market analyst Tony Sycamore. The RBA's governor, Michele Bullock, stated that the bank's meeting on March 17 would be 'live', which has raised expectations of a rate rise.

Bullock's comments were seen as hawkish, and combined with stronger economic data released on Tuesday, economists increased their GDP growth predictions. NAB economists revised up their GDP expectations for the December quarter from 0.6 per cent to one per cent, putting annual GDP growth at 2.5 per cent.

The RBA is monitoring the potential impact of conflict in the Middle East on domestic inflation. Bullock said it would take time to understand the implications and that a supply shock could add to inflation pressures. However, she also noted that a prolonged impact on energy markets could have adverse effects on global economic activity and result in downward pressure on inflation.