April 13 (Reuters) – A top Australian central banker said on Monday he was not confident that interest rates were at the right level to tame inflation, but policymakers would now also need to monitor the impact on economic activity from the Iran war.
Speaking at an event in New York, Reserve Bank of Australia Deputy Governor Andrew Hauser said interest rates would need to go to the level that brings inflation back to the target band of 2%-3%, from its headline rate of 3.7% in February.
“I wouldn’t say we have high confidence that we’ve set interest rates at the right level because you never do have that high confidence. But we’re going to have to monitor this new shock pretty carefully,” said Hauser.
“I think it’s easy to see that upside inflation pressure. More important for us now to think through what the medium-term impact might be. It might still be on the upside, in which case we’re going to have to respond. But we do also need to take account of the possibility that if activity slows.”
The RBA has raised interest rates twice this year to 4.1%, undoing two of the three rate cuts from last year. Sharply higher fuel costs are likely to lift headline inflation to around 5% in the second quarter, the RBA estimated.
Hauser said the central bank was watching consumption closely, which was still growing but at a relatively slow pace, but it was also true that Australian firms were finding it tough to pass on price rises.
Markets imply a 65% chance of another quarter-point rise in May, and see rates peaking around 4.6% by year-end.
(Reporting by Stella Qiu; Editing by Lincoln Feast.)
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