Reserve Bank of Australia governor says March rate hike possible

[SYDNEY] Australia’s top central banker on Tuesday (Mar 3) said an increase in interest rates was possible this month if the policymaking board decided inflation expectations were at risk of becoming unanchored and markets should be aware of that.

Speaking at a business conference in Sydney, Reserve Bank of Australia (RBA) governor Michele Bullock emphasised every policy meeting was live now, given inflation stayed elevated at 3.8 per cent and the unemployment rate remained low at 4.1 per cent.

“I’m not making a prediction about March, but it will be a live meeting,” Bullock told the Australian Financial Review Business Summit. “The board will be actively looking whether or not it needs to move more quickly.”

Markets have tended to assume the central bank would wait for the first-quarter consumer price report due on Apr 29 before deciding whether to lift rates again at its May 5 board meeting.

Bullock said that she wanted to “dissuade” markets from thinking like that, adding that there was a risk that inflation expectations may start to move, given the likely supply shock from the Middle East conflict and already-elevated inflation.

After her remarks, three-year Australian government bond yields extended earlier rises to be up 13 basis points at 4.313 per cent.

Markets moved to imply around a 30 per cent chance of a quarter-point rise at the next meeting on Mar 17, while fully pricing a tightening for May. They also imply around a 75 per cent chance of a further rise to 4.35 per cent by the year’s end.

All eyes are on the Q4 gross domestic product report due on Wednesday.

Forecasts for a 0.6 per cent quarterly expansion are old news now, after data on Tuesday showed net exports proved to be a smaller drag on GDP, subtracting 0.1 percentage point, while public spending added more than expected – 0.3 percentage point – to growth.

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Analysts at the Commonwealth Bank of Australia (CBA) and National Australia Bank now see the economy growing at a rapid 1 per cent in the quarter. Westpac tips an even higher rate of 1.1 per cent.

“At this pace, the Australian economy is running well above estimates of potential growth, helping to explain the inflation dynamics we have seen over late 2025 and in the early stages of 2026,” said Ashwin Clarke, an economist at CBA. “We favour May as the most likely outcome for the next rate hike, but recent data flow lifts the risk of March.”

Asked about the implications of the conflict in the Middle East and the rise in oil prices, Bullock noted that Australia was a net energy exporter, which gave the economy a buffer.

However, she cautioned that if the rise in global energy prices was prolonged, that could weigh on consumer demand and economic growth while also putting upward pressure on inflation. REUTERS