He Australia’s interest rate-setting board is “very alert” to the potential implications for inflation expectations of the conflict in the Middle East and is “well positioned” for a policy response if necessary.Reserve Bank Governor Michele Bullock said on Tuesday.
In one of the first statements by a central bank chief since the United States and Israel began attacking Iran on Saturday, Bullock said the conflict is a “manifestation” of growing geopolitical uncertainty. He warned that it is impossible to predict economic outcomes with any degree of confidence at such an early stage of the military campaign.
“Instead, we need to ensure we can position monetary policy to respond if necessary,” Bullock told a business summit in Sydney. “With the cash rate currently at 3.85% and the economy closer to equilibrium than it was a few years ago, we believe we are well positioned for such a response if necessary.”
The supreme leader of Iran, Ayatollah Ali Khamenei, and other senior government officials were killed in attacks ordered by US President Donald Trump. Tehran responded with a barrage of missiles against Israel and the Persian Gulf region, widening the conflict, sending oil prices soaring and shaking global markets.
Israeli Prime Minister Benjamin Netanyahu said military strikes are expected to intensify in the near future, and Trump said the campaign could last “four or five weeks.” Bullock added that despite the uncertainties, RBA staff will now assess the potential consequences of the conflict for Australian inflation.
“A supply shock could, for example, aggravate inflationary pressures. And we are very attentive to the possible implications for inflation expectations,” Bullock stated at the AFR event. “But at the same time, a prolonged shock to energy markets could have adverse effects on global economic activity and put downward pressure on inflation. It is unclear how this will play out.”
The governor’s comments They come two weeks before the RBA’s monetary policy decision in March, when the board is expected to keep the cash rate unchanged. Last month, the RBA became the first major authority in the developed world to raise rates this year, seeking to curb persistent inflation.
The data since that meeting They point to an economy in full activity, with restrictive working conditions and persistent price pressures. A private indicator published on Monday showed that job openings reached their highest level since October 2024, suggesting that hiring has intensified this year.
The rebound indicates that The labor market is likely to remain tight in the near term, reinforcing concerns that inflation will remain stable without further tightening of monetary policy. Financial markets anticipate a strong possibility of another rate hike in May, which would take the spot rate to 4.1%, with a similar probability of a third hike later in the year.
“At this point we believe that a large part of the unexpected increase in inflation since the middle of last year was due to the sector-specific demand and price pressures that we expect to ease in the coming quarters”Bullock said.
In general, We believe that the underlying demand of the economy is further from its supply potential than we had estimated six months ago, continuous. Various indicators indicate that labor market conditions are restrictive. And it is not clear whether financial conditions are tight enough for inflation to return to the midpoint of the target within a reasonable time frame.
Before the March decision, Authorities will closely analyze fourth-quarter gross domestic product (GDP) data, which will be released on Wednesday. It is likely that the economy expanded 2.2% year-on-year, above its estimated potential rate (a pace consistent with stable inflation), reinforcing the RBA’s assessment that excess demand persists alongside capacity constraints.
