Hawkish RBA throws interest rate grenade at mortgage holders

Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser gave an interview at Citi’s Australia & New Zealand Investment Conference in Sydney on Wednesday.

Hauser warned that Australia’s “inflation outlook looks materially worse than we projected in the August report”, that “inflation has been high for a very long time now”, and that “people in the community are not sure if we’re going to bring inflation back into target at all”, which increases the possibility of an interest rate rise at the Bank’s next meeting in November.

Hauser is particularly concerned that inflation expectations may be becoming entrenched in the economy. Business surveys suggest that more firms now believe 3-3.5% inflation may be the “new normal”, which Hauser described as a “central banker’s nightmare”.