RBA Deputy Governor Andrew Hauser sharpened central bank’s tightening warning on Wednesday, saying another rate increase would follow if inflation stops improving. Speaking at an event in Queensland, Hauser said: “If those upside risks to inflation crystallise and we don’t see inflation coming down, we will have to raise interest rates again and we will do so.” The message reinforces RBA’s August decision to retain explicit tightening optionality even after holding cash rate at 4.35%, following 75bps of increases since February.
Hauser identified three upside risks in particular: Middle East conflict, global AI boom and weak productivity growth. Middle East risk has become increasingly relevant as oil prices climb again, potentially feeding energy and transport costs into inflation. AI investment presents a different challenge by supporting demand and competing for resources, while poor productivity limits economy’s ability to grow without generating additional price pressure. Taken together, these risks leave RBA unwilling to assume recent disinflation will continue automatically.
At the same time, Hauser acknowledged that tighter monetary policy is already slowing economy. RBA has seen “a bit of a slowdown in consumption and employment growth,” although he added that policymakers “need to see more still.” He rejected a more severe characterization of current conditions: “That is not a slump. It is not a depression… but it’s a lot slower than Australia has known in the past and it’s a lot slower than recently.” Recent softer inflation readings and weaker housing conditions therefore matter, but RBA does not yet appear convinced demand has cooled enough to neutralise upside risks.
Markets are reflecting that uncertainty, pricing around a 60% chance of another increase to 4.60% by December as renewed oil strength brings imported inflation risks back into focus. Hauser’s remarks do not make another hike inevitable, but they clarify RBA’s reaction function: continued disinflation allows policy to stay on hold; stalled inflation combined with materialisation of oil, AI or productivity risks would bring tightening back. That leaves upcoming inflation and labor-market data as the evidence needed to decide which side of that conditional warning becomes relevant.
Key Takeaways
- RBA Deputy Governor Andrew Hauser made tightening bias more explicit, saying rates “will have to” rise again if upside inflation risks materialise and disinflation stalls.
- Hauser identified Middle East conflict, global AI boom and weak productivity as three key upside risks to inflation.
- He acknowledged consumption and employment growth have slowed, but said RBA “needs to see more still,” indicating current cooling is not yet sufficient to remove inflation concern.
- Hauser rejected a recessionary interpretation, saying economy is “not a slump” or depression, but is growing much more slowly than Australia has been used to.
- Markets are pricing roughly 60% probability of another hike to 4.60% by December, reflecting renewed concern that oil and other inflation risks could keep RBA tightening option alive.
- Core message is conditional but hawkish: continued disinflation supports a hold; stalled disinflation alongside stronger upside risks would bring another hike back into play.
