TD Securities analysts highlight a hawkish shift from the Reserve Bank of Australia (RBA) after Deputy Governor Hauser signaled limited confidence that current policy is sufficient to return inflation to target. They now forecast a 25 bps rate hike at the next meeting and warn the cash rate may need to rise above 4.35% if Oil-driven inflation persists.

RBA signals scope for further tightening

"The RBA Deputy Governor indicated that the RBA Board does not have "high confidence" that the cash rate is at a level consistent with bringing inflation back to the 2-3% inflation target in comments at a Fireside chat in New York."

"Further, Deputy Governor Hauser stated inflation in the economy is “too high” and said policymakers were grappling with the implications of the income shock from surging oil prices due to the Middle East conflict."

"“Rates will have to go to a level where they bring inflation back to target. And if that means them going higher, it means them going higher"."

"RBA staff last month estimated the direct effect via petrol prices of oil remaining around $100 a barrel would be to lift headline inflation to around 5% y/y in Q2, well above target band."

"We forecast another 25bps hike at next month's meeting and see the risk the RBA may need to take the cash rate above 4.35% after May."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)