Australia's Reserve Bank "number two" warns: if inflation proves difficult to alleviate, interest rates may be raised again.

Andrew Hauser, the Deputy Governor of the Reserve Bank of Australia, stated that if the risks of rising inflation materialize and consumer prices fail to decline, the bank will need to raise interest rates again. Although we concluded last week that the current level of interest rates is appropriate, we remain concerned about the inflation outlook and are highly vigilant about the risks of inflation rising, said the second-in-command of the Reserve Bank during a fireside chat in Brisbane on Wednesday. Last week, the Reserve Bank decided to keep the interest rate unchanged at 4.35% during its second policy meeting, marking the second consecutive time that it chose to hold steady. Currently, Australia is once again facing upward pressure on inflation, a problem that emerged before the attacks by the U.S. and Israel on Iran triggered a global energy shock. Although last quarter's consumer price index was slightly below expectations, it remains well above the midpoint of the target range of 2%-3%a level the Reserve Bank has not touched for nearly five years. Hauser stated, If the risks of rising inflation come true and we do not see prices falling, then we will have to raise interest rates again and will act decisively. This statement echoes comments made last week by Chairman Michele Bullock following the policy meeting. In the latest quarterly economic outlook, the Reserve Bank projected that the inflation rate would not return to the target level of 2.5% until early 2028. In its first three policy meetings of this year, the bank chose to raise interest rates to curb the pace of price increases. Data from the money market indicates that the market expects about a two-thirds probability of another rate hike before December, but most economists predict that the Reserve Bank will remain on hold for the rest of the year. Hauser made his remarks at the annual regional summit of the Queensland Futures Institute, where he was also asked about the housing shortage issue both in the state and nationwide. Australia needs more housing, and Queensland is no exception, he acknowledged. Interestingly, when you examine the data, people often say Australias ability to build homes is lacking, but thats not the case, Hauser remarked. On a per capita basis, the number of new homes being built in Australia is actually higher than in most countries, its just still not enough to meet demand. Regarding the recent softness in housing prices, Hauser reiterated that, despite a recent decline, prices are still about 50% higher than during the pandemic.