Moody's Economist Predicts Potential Rate Hike by Reserve Bank of Australia Amid Middle East Conflict

Moody's economist Sunny Kim Nguyen has indicated that the Reserve Bank of Australia (RBA) is increasingly likely to raise interest rates by 25 basis points due to escalating Middle East tensions. According to Jin10, even before the conflict, the rationale for tightening policy was clear, driven by inflation exceeding targets, growth surpassing potential, and a tight labor market. Recent statements from the RBA's chair and deputy chair suggest a shift in tone. Nguyen notes that while the oil price shock will temporarily impact Australian inflation, the real risk lies in the secondary effects. The longer the conflict persists, the more entrenched any unanchored inflation expectations may become. Although there remains a possibility of holding steady in March and hiking in May, Nguyen believes the RBA should act sooner rather than later.