Reserve Bank of Australia Governor Michele Bullock said the policy board will not hesitate to lift interest rates if needed to contain persistently high inflation.
The board is vigilant on upside risks on inflation, the hawkish governor said in a speech on Thursday.
She noted that the gap between aggregate demand and aggregate supply in the economy is larger than previously thought and this is resulting in persistent inflation.
The growth of demand is expected pick up over the next year but Bullock cautioned that there is considerable uncertainty around the outlook. The effect of this was that the expectations for when inflation will fall back to target have been pushed out, the governor said.
Inflation is not expected to be in the 2-3 percent target range until the end of 2025, she observed.
At its meeting on Tuesday, the board explicitly considered whether another interest rate rise was required to ensure inflation continues to decline in a reasonable timeframe, said Bullock.
On balance, the bank had kept the rate unchanged at a 12-year high for the sixth consecutive meeting.
However, Bullock said, … the Board remains vigilant with respect to upside risks on inflation and will not hesitate to raise rates if it needs to.