Reserve Bank of Australia (RBA) Governor Michele Bullock has indicated that a rate hike at the March board meeting is a 'live' possibility, citing rising oil prices due to attacks on Iran and a tight labour market. The comments come as investors and economists had largely discounted a move at the upcoming meeting on 16-17 March.
Speaking at the AFR's business summit, Bullock said the board would actively consider whether to move more quickly to address inflation, which stands at 3.8% headline, and unemployment at 4.1%. 'I'm not making a prediction about March, but it will be a live meeting,' she stated.
Financial markets reacted swiftly, with the probability of a March hike jumping from near zero to over 25%, according to Bloomberg. However, the May meeting remains the most likely timing for another increase. The RBA lifted the cash rate to 3.85% in February after a surprise inflationary surge.
Bullock warned that a prolonged oil price spike due to the US-Israeli missile strikes could threaten economic growth. 'If it's a very elongated conflict, there's the potential for it to be impacting economic activity, not just here, but around the world,' she said. The Brent crude price traded at $US78.07 a barrel, with Wall Street largely unchanged.
The governor noted that while the central bank typically looks past temporary price shocks, the current situation may require a different approach due to already elevated inflation and the risk of unanchored inflation expectations. She added that the response to the attacks on Iran had so far been 'orderly'.
