AUD/USD: RBA warns on entrenched inflation risk – BNY

BNY’s EMEA Macro Strategist Geoff Yu highlights that RBA Governor Michele Bullock signaled further rate hikes are possible if Australian inflation remains entrenched, with expectations and productivity trends worrying policymakers. The RBA sees both headline and core inflation above its 2–3% band this year, while consumer inflation expectations have moved back above 5%, keeping pressure on the Australian Dollar and local bond yields.

Bullock keeps tightening option alive

"RBA Governor Michele Bullock has warned that the central bank may raise interest rates further if inflation proves entrenched."

"She stated that inflation “with a three in front of it” is unacceptable and underscored that the board will remain data-dependent and continually reassess its forecasts."

"Speaking in parliament, Bullock highlighted that the RBA expects both headline and core inflation to overshoot the 2-3% target band this year, following last week’s rate increase to 3.85%, and indicated that while another hike is not set in stone, it would go ahead if required."

"Australia’s February consumer inflation expectations increased by 0.4 percentage points to 5.0%, based on the 30% trimmed mean measure, marking a return above 5% after seven consecutive months below that threshold."

"The latest outcome is cited as supporting the RBA Board’s decision to raise the cash rate target to 3.85%."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)