RBA Deputy Governor Andrew Hauser said the board does not have “high confidence” that the current cash rate will return inflation to the 2–3% target. He made the comments at a fireside chat in New York.
Hauser said inflation is “too high” and that policymakers are assessing the income shock from rising oil prices linked to the Middle East conflict. He said rates will need to be set at a level that brings inflation back to target, and could rise if required.
Oil Price Shock Raises Inflation Risk
RBA staff estimated last month that if oil stays near $100 a barrel, higher petrol prices would lift headline inflation to about 5% year on year in Q2. That would be above the 2–3% target band.
TD Securities now forecasts a 25 basis point rise at the next meeting. It also warns the cash rate may need to move above 4.35% after May if oil-driven inflation continues.
The article was produced using an AI tool and checked by an editor.
We are seeing a clear hawkish shift from the RBA, as Deputy Governor Hauser’s comments show they don’t have high confidence in their current policy. This means we must seriously re-evaluate the possibility of a rate hike at the upcoming May 2025 meeting. The door is now wide open for further tightening.
Market Positioning For Higher RBA Rates
These concerns are not unfounded, as we saw annual inflation remain sticky at 3.6% in the first quarter of 2025, well above the RBA’s target. With Brent crude prices consistently holding above $90 a barrel due to ongoing Middle East tensions, the risk of inflation staying high is very real. This data gives credibility to the RBA’s warning about inflation potentially hitting 5%.
For those trading interest rate derivatives, this signals a need to position for a higher cash rate. We’ve seen the market react, with interbank cash rate futures for mid-2025 shifting to price in a higher probability of a 4.60% cash rate. Protecting against or betting on a hike in the coming months is now the primary play.
This policy pivot should provide strong support for the Australian dollar. A central bank that is more likely to hike rates than its peers tends to attract capital, boosting its currency. We should consider positioning for AUD strength against currencies with more dovish central banks.
The increased uncertainty surrounding the RBA’s next move will likely push up market volatility. We can expect implied volatility in AUD/USD options and options on three-year bond futures to rise. This presents opportunities for traders who focus on volatility rather than just market direction.
