Reserve Bank of Australia Assistant Governor (Economic) Sarah Hunter said higher interest rates are already slowing parts of the economy, particularly housing, but the Bank continues to see inflation risks skewed to the upside. Speaking on 9Now’s The Pay Off podcast, Hunter said the recent housing downturn has been relatively rapid compared with previous episodes, while broader demand is also responding to tighter financial conditions. She described that slowdown as an intended part of monetary transmission: “We were expecting that. That’s actually what we want. We want to take some of that pressure out of the system.”
Yet the weakening in housing has not been enough to remove the RBA’s inflation concern. Hunter said the Board was “pretty clear” at its August meeting that, despite leaving the cash rate unchanged at 4.35%, it remained very concerned about inflation. She added that the RBA sees the balance of inflation risks as “skewed to the upside,” with the Middle East conflict and higher energy prices among the forces capable of adding renewed pressure. Higher rates are therefore doing what the Bank intended by restraining demand, but the resulting slowdown has not yet provided sufficient assurance that inflation will return sustainably to target.
That leaves the RBA balancing evidence that policy is gaining traction against the risk that another inflation shock requires additional restraint. Hunter said that if the upside risks materialize, the Board would “definitely be considering whether or not they have to hike the cash rate.” She did not pre-commit to a September increase, but the message reinforces the conditional tightening bias already evident in recent RBA communication: slower housing and demand are signs that monetary policy is working, not by themselves reasons to stop tightening if inflation continues to surprise on the upside.
Key Takeaways
- RBA Assistant Governor (Economic) Sarah Hunter said higher interest rates are already slowing housing and taking pressure out of demand, which is part of the intended transmission of tighter policy.
- Hunter described the recent housing downturn as relatively rapid and said: “We were expecting that. That’s actually what we want. We want to take some of that pressure out of the system.”
- Despite that slowdown, the RBA still sees inflation risks “skewed to the upside”, with energy and Middle East developments among the potential sources of renewed pressure.
- The August decision to hold at 4.35% did not signal comfort with inflation. Hunter said the Board remained “very concerned about inflation.”
- Hunter kept the door open to further tightening, saying the Board would “definitely be considering whether or not they have to hike the cash rate” if upside inflation risks materialize.
- The key message is that evidence policy is working does not automatically argue against another hike if inflation pressures remain too persistent.
