RBA's Hunter: further rate hike possible as inflation risks stay elevated

Financial markets now assign a 95% probability that the RBA board will raise the cash rate to 4.60% at its September 29 meeting, with expectations pointing to a peak of 4.85% early next year. Hunter's comments—which flag upside inflation risks from Middle East oil costs and domestic demand exceeding supply—support that pricing rather than question it. For oil, the remarks underline how energy costs are now feeding directly into Australian rate expectations, with higher petrol and freight costs highlighted as a specific transmission channel pushing inflation above target. The Australian dollar and rate-sensitive assets are likely to be steered by confirmation of this hawkish stance at Bullock's post-decision press conference.

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Still to come:

• Tuesday, September 22, 2026 - RBA Governor Bullock speaking

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The RBA's chief economist says the case for another rate rise is building, driven by Middle East oil costs and demand outpacing supply, even as she stresses there are no signs of systemic mortgage stress.

Summary:

• RBA Assistant Governor (Economic) Sarah Hunter said on a 9Now podcast, recorded September 7 and published September 22, that the Bank's board is concerned inflation has stayed too high for too long and risks becoming embedded in price setting behaviour.
• Hunter pointed to higher energy costs from the Middle East conflict and to domestic demand running ahead of supply as reasons inflation could turn out higher than currently expected.
• Reuters reported the RBA has raised rates by 75 basis points since February to a post pandemic high of 4.35%, with core inflation still at 3.6%, above the Bank's 2 to 3% target range.
• Markets have priced in a 95% chance of a hike to 4.60% at the September 29 meeting, with rates seen peaking at 4.85% by early next year.
• In the podcast, Hunter said interest rates respond to inflation rather than cause it, explained why the cash flow effect of rate rises falls unevenly across mortgage holders, renters and outright owners, and said rents are driven by local supply and demand rather than moving one for one with interest rates.
• Hunter said there are no systemic signs of mortgage distress, noting negative equity is lower than before the pandemic and just over 40% of households are two or more years ahead on mortgage repayments.

The Reserve Bank of Australia's chief economist said the Bank may need to raise interest rates for a fourth time this year, adding weight to market expectations of a hike as soon as next week, Reuters reported. Assistant Governor Sarah Hunter, appearing on the 9Now podcast The Pay Off, said the RBA's policy board remains concerned that inflation has stayed too high for too long and risks becoming embedded in price setting behaviour across the economy.

Hunter pointed to two main sources of upside risk in the episode, which was recorded September 7 and published Tuesday. Higher energy costs from the Middle East conflict are flowing through to petrol prices and, indirectly, to the cost of moving goods such as food, she said. She also flagged domestic capacity constraints, citing high demand for tradespeople in cities like Brisbane, Perth and Adelaide, as a broader sign the economy remains tight in parts. Reuters reported the RBA has lifted rates by 75 basis points since February to a post pandemic high of 4.35%, while core inflation remains at 3.6%, above the Bank's 2 to 3% target range. Markets have priced in a 95% chance of a further increase to 4.60% at the September 29 meeting, with rates expected to peak at 4.85% by early next year.

In the wider interview, Hunter addressed several common assumptions about monetary policy. She said the idea that rate rises are a blunt instrument affecting only mortgage holders has some truth, since only around a third of Australians hold a mortgage, but argued higher rates also work through the exchange rate, spending and saving incentives, and the housing market more broadly. She said the relationship between inflation and interest rates runs mostly one way: a shock such as higher oil prices pushes inflation up first, and the RBA then raises rates in response, rather than rate rises causing inflation. On housing, she said rents are driven by local supply and demand conditions rather than moving directly with mortgage rates, pointing to construction sector shortages of labour and rising materials costs as the main drivers behind recent rent increases.

Hunter also addressed financial stability, saying she sees no systemic signs of mortgage distress. She said the proportion of households in negative equity is currently lower than before the pandemic, given the scale of prior house price gains, and that just over 40% of households are two or more years ahead on their mortgage repayments, providing a buffer against income shocks. On the outlook, she said the RBA's forecasts assume inflation eases over the coming years but cautioned that a further cash rate rise remains possible if current upside risks materialise, with the board's next opportunity to act at its September 29 meeting.