RBA Keeps Door Open for Immediate Policy Tightening

Reserve Bank of Australia Governor Michele Bullock said Tuesday that an interest rate hike remains possible as early as this month if inflation expectations become unanchored. Speaking at a business conference, she stressed that the board would not necessarily wait for the full first-quarter inflation data, due in late April, before making a decision. “Every meeting is live,” Bullock said, referring to the March 17 board meeting, adding that policymakers would assess whether they need to move more quickly. Markets have largely assumed the central bank would hold off until the first-quarter CPI report on April 29 and potentially act at the May 5 meeting. Bullock, however, said she wanted to “dissuade” markets from relying on that assumption, signaling flexibility and a readiness to tighten policy sooner if needed.

Australia’s inflation picked up in H2 2025 and was “too high,” according to the Reserve Bank’s February meeting minutes. While much of the rise in underlying inflation was seen as temporary, members judged some of it reflected persistent pressures. As a result, the central inflation forecast was revised materially higher, with inflation projected to stay above target through 2026 and only return close to the midpoint around mid-2028, assuming the cash rate follows the market path. Model estimates suggested spare capacity had narrowed, with aggregate demand exceeding supply and the labour market staying a bit tight. Solid output growth, resilient global conditions, and still-elevated unit labour costs reinforced capacity pressures. Members also worried that financial conditions were no longer restrictive enough. Overall, they agreed there was a stronger case to raise the cash rate by 25bps, as inflation risks had increased and downside risks to full employment had eased.

Australia’s battle against inflation is far from over, the Reserve Bank Chief Economist Sarah Hunter warned in a speech, noting that returning price growth to target will take “some time” and may require further rate hikes. She highlighted that demand has recently grown faster than trend while the economy is already near capacity, adding, “We expect the labor market will remain tight and inflation will remain above target for some time.” Meanwhile, Governor Michele Bullock, speaking at a Senate hearing, stressed that strong private demand, rather than fiscal policy, remains the main challenge. She emphasized the central bank stands ready to raise rates again if inflation proves persistent, as renewed price pressures since late 2025 continue to weigh on the outlook.