The Reserve Bank’s deputy governor has said the board is not fully convinced rates are tight enough, as the ongoing energy‑price shock threatens to push inflation higher.
Speaking at a fireside chat with the Money Marketeers of New York University on Tuesday, Andrew Hauser said the central bank was grappling with the risk that the spike in fuel and energy costs could turn into a “central banker’s nightmare” of rising prices and weakening activity.
Hauser told the audience the board did not have strong “confidence” that the current policy setting was where it needed to be and stressed the degree of uncertainty around the outlook.
“I wouldn’t say we have high confidence that we’ve set interest rates at the right level because you never do have that high confidence,” he said.
“We’re going to have to monitor this new shock pretty carefully.”
He said the latest rise in global oil prices, which has driven a jump in fuel costs, had complicated an already challenging balancing act.
Hauser characterised the policy dilemma in stark terms, underscoring the risk that Australia could be hit by a stagflation‑type environment.
“It is the central banker’s nightmare, inflation up, activity down. Judging the balance between those two is, I guess, how we earn our money,” he said.
Inflation seen rising, activity at risk
The deputy governor said the energy shock represented a significant hit to real household incomes, even though higher export prices could temporarily boost government revenue.
“This is a big, real income shock for Australia, even if national income and the fiscal coffers may benefit from that net export position,” he said.
Hauser made clear that if the board judged that the danger of inflation remaining too high outweighed the growth risks, it would not hesitate to tighten policy further.
“Inflation risks might still be on the upside in the medium term, in which case we’re going to have to respond. But we do also need to take account of the possibility that activity slows,” he said.
Hauser said it was “obvious” that inflation would push higher in the near term as fuel and other energy‑related costs flowed through the economy.
He also noted that the bank wanted to see demand cool to help ease those pressures.
As at 14 April, the ASX 30 Day Interbank Cash Rate Futures May 2026 contract was trading at 95.77, indicating a 64 per cent expectation of a 25-basis-point cash rate hike at the RBA’s May board meeting.
Yet at the same time, fresh spending figures suggest households are still opening their wallets.
NAB’s consumer spend trend March 2026 report, released on Wednesday (15 April), showed that consumer spending rose 2.1 per cent in March, driven by a 33.5 per cent increase in fuel spending.
The bank said underlying spending remained positive even once the fuel surge was stripped out, supported by food purchases and higher construction‑related outlays.
NAB also highlighted an emerging divergence between different types of household spending, with non‑essential outlays starting to be pared back.
Meanwhile, spending growth among mortgage holders over the 12 months was around double that recorded over the same period last year, with indebted households outpacing non‑mortgage holders across nearly all spending categories.
NAB warned this left mortgage holders particularly vulnerable if petrol prices remained elevated, or the RBA delivered additional hikes in the coming months.
“As mortgage holders have higher average fuel spending and construction spending, the fuel price shock impacts may weigh more heavily on this group,” NAB said.
Consumer confidence falters as major banks all predict May hike
Hauser’s comments come after fresh figures showed Australians’ confidence slumping back towards pandemic‑era lows, with Westpac noting on Tuesday (14 April) that its Consumer Sentiment Index tumbled 12.5 per cent in April to 80.1, from 91.6 in March.
This marks the steepest monthly fall since the onset of the COVID‑19 pandemic and returns confidence to levels normally associated with recession.
“Sharp deterioration in expectations suggests consumers are bracing for a return to the extended period of weakness seen during the 2022–24 inflation fight,” Westpac’s head of Australian macro‑forecasting, Matthew Hassan, said.
Despite the decline, Westpac said that the RBA’s chief concern was lowering inflation back to target levels and added that it was maintaining its call for 25‑bp cash rate hikes at the RBA’s May, June, and August meetings.
Meanwhile, Commonwealth Bank of Australia (CBA), National Australia Bank (NAB), and Australia and New Zealand Banking Group (ANZ) are all still projecting only one final 25-bp increase at the May meeting.
[Related: Westpac warns consumer slump won’t stop rate hikes]
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