Business and household borrowing costs are expected to rise from Tuesday, with the Reserve Bank of Australia (RBA) widely tipped to lift interest rates in the face of skyrocketing fuel prices.
Conflict in the Middle East continues to shake the global oil market, with barrels of crude brushing US$100 on Monday, well ahead of the 2025 average price of US$69 a barrel.
Prices at the pump have soared in the past fortnight, with efforts to mitigate the supply shock not expected to temper the cost of petrol and diesel in the immediate future.
Faced with significant fuel inflation — and the likelihood of groceries, materials, and other consumer goods becoming pricier as a result — Australia’s big four banks predict the RBA will hike official interest rates tomorrow.
Commonwealth Bank, Westpac, ANZ, and NAB all predict the central bank’s Monetary Policy Board will hike the cash rate target by .25% to 4.1%, followed by another hike in May, lifting it to 4.35%.
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Combined with headline inflation sitting at 3.8% and continued low unemployment, the banks are convinced surging oil prices will convince the board to act.
“The effect of higher oil prices on headline inflation is large but temporary,” said Luci Ellis, Westpac chief economist, in a memo sent Monday.
But the Monetary Policy Board “will nevertheless feel compelled to react, especially given the hit to confidence and financial markets from the Middle East conflict has so far not been severe,” she added.
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Earlier, ANZ’s economics team said increased inflation risks are “creating more urgency to move quickly to contain inflation expectations”.
Should the RBA follow through on those expectations, borrowing rates for small businesses and homeowners are set to grow.
Fuel supply in focus
With no clear resolution in sight for a conflict involving the United States, Israel, and Iran, which has closed critical oil shipping lanes in the Persian Gulf, the federal government and Australian regulators are attempting to prevent a total supply crunch and uncontrolled price hikes.
Minister for Climate Change and Energy Chris Bowen has confirmed the release of up to 762 million litres of both petrol and diesel from Australia’s onshore stockpile, intended to alleviate local shortages across regional Australia.
Bowen said panic buying, on top of natural demand, has dramatically reduced fuel supplies in some regional communities.
“There is no need to stockpile or hoard fuel,” he said, in a statement published Friday.
“Take what you usually need so that no one has to go without.
The Australian Competition and Consumer Commission (ACCC) is also concerned by the potential for retailers to exploitatively lift the cost of fuel, and has written to major brands asking them to justify their prices at the pump.
“Fuel companies should be open and honest about the reasons for such widely varying and rapid increases across the country and treat their customers fairly,” said ACCC commissioner Anna Brakey on Friday.
“We urge petrol retailers to explain their positions to the Australian community.”
