Australia's top central banker said on Tuesday that upside risks to inflation may be materialising given energy prices have stayed high and there continued to be excess demand at home, underlining market wagers for a rate hike as soon as next week.
Speaking at a business lunch, Reserve Bank of Australia Governor Michele Bullock also said that unemployment in a range of 4.5% to 5.0% could help restrain inflation, suggesting some rise might be needed from the current level of 4.5%.
Bullock said she was not trying to signal what might happen to rates when the nine-member RBA policy board met on September 29, but rather highlighting the upside risks to inflation.
These included the conflict in the Middle East and its impact on energy prices, along with inflationary pressures from domestic demand.
"And the question we're asking ourselves, have some of those things materialised?" said Bullock. "The Middle East conflict has gone on now for much longer than people thought it would ... and there still seems to be excess demand in the economy."
Bullock has repeatedly warned that the central bank's policy board was concerned that inflation had been too high for too long and risked getting baked into price-setting behaviour.
Earlier on Tuesday, RBA Assistant Governor Sarah Hunter reiterated that interest rates might have to rise for a fourth time this year to ensure inflation was reined in.
The board has increased the cash rate by 75 basis points since February, taking it back to a post-pandemic high of 4.35%. Yet core inflation is still running at 3.6%, well above the RBA's target range of 2% to 3%.
Markets have priced in a 95% chance the RBA will hike to 4.60% when it meets next week, and see rates peaking at 4.85% early next year.
(Reporting by Wayne Cole and Sella Qiu; Editing by Christian Schmollinger and Kim Coghill)
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