Reserve Bank deputy governor Andrew Hauser says the inflation outlook is “materially worse” than previously forecast, raising the prospect of another interest rate hike in November.
Hauser said at an event in Sydney on Wednesday that the RBA was facing a “central bankers’ nightmare”, and warned mortgage holders and businesses that the bank is facing “hard choices” as it tries to lower inflation (SMH).
“The challenge that’s facing the board and has done for some time is do you do more to tackle higher inflation, recognising that that means weaker activity, weaker labour market,” he said (SMH).
“[Or] do we hold our horses to protect the labour market", he added, saying this could bring “upside inflation risk” that will become “more expensive to deal with” (SMH).
“The RBA seems increasingly prepared to risk a recession to get inflation down,” said Betashares chief economist David Bassanese. “The economy is slowing, house prices are slumping, interest rates are restrictive, unemployment is going up, and they still want to do more” (AFR).
Markets had priced a Melbourne Cup day rate rise at 27% before Hauser made his remarks, but odds climbed to 57% afterwards (AFR).
Read more: Could a German economist fix the RBA’s inflation problem? (TSP)