Investors may be breathing a sigh of relief after this week’s benign inflation report, but a cohort of economists argues that Australia’s central bank is likely to lift interest rates one more time this year, given the higher costs related to the conflict in the Middle East.
KPMG chief economist Brendan Rynne warned that the economy was still running too hot, unlike in Canada and New Zealand where demand was starting to cool down.
Rynne said Australia was not getting a boost from stronger productivity, which meant excess spending would continue to drive up prices.
“It’s this outlook that suggests that the need for an additional interest rate increase in the near term to dampen demand further is more likely than not,” he cautioned.
The Reserve Bank of Australia has already raised the cash rate three times in quick succession this year, pushing it up to 4.35 per cent – the highest level in more than two years – to tame resurgent inflation.
While traders have abandoned bets for an imminent rate rise after consumer prices for the June quarter undershot forecasts, they still think the next move will be higher.
Before the inflation report, markets had implied a one-in-five chance of a rate rise in August.
Source: https://www.afr.com/markets/debt-markets/not-out-of-the-woods-yet-these-economists-warn-rate-rises-are-coming-20260730-p60jvz