RBA Warns of Potential Interest Rate Hikes Amid High Inflation

Australia's mortgage holders have been warned of potential interest rate hikes as the Reserve Bank of Australia (RBA) grappled with persistently high inflation at a parliamentary inquiry. Inflation is currently sitting at 3.5%, well above the target range of 2-3%. RBA governor Michele Bullock emphasized that monetary policy works and interest rate rises can lower inflation, citing Turkey's prime minister as an example who initially believed higher interest rates meant higher inflation, but now faces a 37% inflation rate.

Bullock acknowledged that Australian mortgage holders feel the impact of interest rate hikes more keenly than those in other countries, due to the country's unique variable rate mortgage book. However, she emphasized the need to contain inflation, as price pressures from rising oil prices are now spreading through the Australian economy.

The RBA forecasts suggest that inflation will not return to the midpoint of the target range until late 2027, but recent developments have added pressure. The critical cash rate call is expected within weeks, with money markets placing a nearly 76% chance of another interest rate hike due to the inflation problem.