The Australian central bank sends a hawkish signal, structural challenges may push up long-term interest rates.

Reserve Bank of Australia (RBA) Governor Michele Bullock said at a parliamentary hearing in Canberra on Wednesday that the central bank is closely monitoring inflation pressures and is prepared to respond to signs of a potential rebound, hinting that the policy stance may once again turn towards tightening. She emphasized that if data in the coming months show inflation to be stickier than expected, it would mean that demand pressures are still present, which could affect the future path of monetary policy. Bullock noted that while current forecasts still point to a decline in inflation, the RBA remains vigilant about the possibility of rising inflation pressures and will react accordingly. This statement prompted traders to bring forward expectations of an RBA rate hike to August next year, from the previous market consensus of November. Meanwhile, the yield on three-year government bonds, sensitive to policy changes, has slightly increased. The release of these comments comes as Australia is set to announce third-quarter Gross Domestic Product (GDP) data. Market expectations for this quarter's economic growth are at 0.7% on a quarter-on-quarter basis, potentially marking the fastest growth since late 2022. While next week's monetary policy meeting is expected to keep rates unchanged at 3.6%, uncertainty about policy prospects is increasing. Bullock stated that it is currently difficult to determine whether the economy has exceeded its potential level, but she assessed that the output gap has narrowed significantly. This means that if demand growth exceeds expectations, it could quickly upward price pressures. "If we are already at an equilibrium between supply and demand, and demand growth surpasses expectations significantly, this will undoubtedly bring additional pressure to inflation," she added. Economists have different opinions on the future direction of policy: some still expect interest rate cuts next year, while others believe rates will remain unchanged, and there are views aligned with market expectations that the next step will be a rate hike. The RBA has kept its key rate unchanged three times since February, maintaining the lowest level since April 2023. Due to third-quarter inflation persistently exceeding the upper limit of the 2-3% target range and the labor market remaining tight, the RBA has shifted towards a more data-dependent policy stance. Recent data indicates that the economic fundamentals remain robust: November house prices continued to rise, third-quarter business investment outperformed expectations, and household spending showed resilience. Against this backdrop, many economists from institutions including the Commonwealth Bank of Australia and National Australia Bank have indicated a possibility of rate hikes in 2026. Furthermore, sluggish productivity has dampened Australia's potential economic growth level, which means that inflation could rise faster when the economy strengthens. This structural change also implies that this cycle's interest rate level may continue to be higher than before.