SYDNEY, March 11 (Reuters) – A growing number of economists, including from Westpac, National Australia Bank and Deutsche Bank, on Wednesday tipped Australia’s central bank to raise interest rates next week, following an inflation warning from a senior official a day earlier.
Market pricing also shifted to reflect a 75% probability that the Reserve Bank of Australia will raise interest rates by 25 basis points to 4.1% next Tuesday as a war in the Middle East pushed up oil prices and fuelled inflation risks.
In an interview with news outlet The Conversation, RBA Deputy Governor Andrew Hauser warned that the spike in oil prices would push inflation higher, adding that he expected a debate among the board about whether or not to raise rates next week.
“The effect of higher oil prices on headline inflation is large but temporary,” said Luci Ellis, chief economist at Westpac.
“The RBA Monetary Policy Board will nevertheless feel compelled to react, especially given the hit to confidence and financial markets has so far not been severe.”
The RBA was forced to raise rates to 3.85% last month as inflation reaccelerated after three reductions last year. Headline inflation was at 3.8% in January, with the trimmed mean measure edging up to 3.4%, above the target band of 2% to 3%.
Phil O’Donaghoe, chief economist at Deutsche Bank, had thought the volatility associated with the Iran war meant the risk of a March hike had dissipated.
“Our read of Hauser’s remarks is that this conclusion was the wrong one,” he said. “An amplification of the conflict in coming days could still prompt a pause, but our base case now is for a hike.”
(Reporting by Stella Qiu; Editing by Christian Schmollinger and Thomas Derpinghaus)
