Australians hit by soaring petrol prices now face expected blow of interest rate rise | Interest rates
Millions of Australians could be hit by the double whammy of rising oil prices and higher mortgage repayments amid growing expectations that the US-Israeli war on Iran will force the Reserve Bank to raise rates on Tuesday.
Economists at three investment banks were led to predict that the RBA board would raise the cash rate to 4.1% by the end of its upcoming two-day meeting after central bank deputy governor Andrew Hauser said the data “confirms even more decisively that our economy currently has limited spare capacity”.
Hauser speaks with Conversation’s Michelle GrattanHe said: “Further rising prices from Iran is not a useful development for our policy debate if that is what we end up seeing – which is very likely.”
Bets on a rate hike in March increased after Hauser’s comments; Financial markets are pricing the probability of consecutive interest rate hikes at 64% following the rate hike in February.
UBS chief economist George Tharenou said the market was caught up in Hauser’s “hawkish” comments and central bank economists appeared likely to recommend a rate hike to the board.
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“However, we expect this recommendation to be fully discussed by the RBA board and therefore we do not expect a unanimous increase,” he said.
According to Motormouth, gasoline prices on Tuesday averaged $2.18 per liter in Sydney and Brisbane, $2.16 per liter in Melbourne, $2.12 in Canberra and $1.94 in Perth.
Assuming a typical household uses 35 liters of fuel per week at $2.09, this pushed average weekly gas bills to a record high of more than $73.15, up nearly 25% from the February average, according to the AMP analysis.
Reflecting the potential for escalation for higher interest rates, the Australian dollar rose as high as 71 cents despite turmoil in global financial markets that would otherwise have triggered a sell-off in Australia.
Energy markets took wild turns as investors reacted to Donald Trump’s often contradictory statements about when the new Middle East war would end.
Brent, the international crude price benchmark, climbed to around US$120 this week before collapsing and is now at US$87.80, 40% higher than at the beginning of the year, according to Bloomberg.
Hauser said in the interview that the central bank had updated its inflation forecasts in response to the shock of higher energy costs, “but there is clearly an upside risk to the projection in February.”
With financial markets now pricing in the potential for a third rate hike by November, the vice president said inflation of 3.8% was already “well above our target range” of 2% to 3%.
But he said the board would also consider the possibility that higher energy costs would put pressure on the global economy, which could make it opposed to a rate hike next week.
“I think it will be a very frank discussion,” Hauser said.
“Inflation is too high. Higher prices don’t help that argument. But there are arguments on both sides, and I think if there’s ever a time for board members to get their meager salaries, it’ll be this month.”
