RBA now twice as likely to hike interest rate as US-Iran war drives fuel prices higher

RBA now twice as likely to hike: ens Wanderstayfinder.com – The RBA now twice as likely to raise interest rates, according to updated market forecasts

RBA Now Twice as Likely to Hike as Fuel Crisis Deepens

Wanderstayfinder.com – The RBA now twice as likely to raise interest rates, according to updated market forecasts, as the escalating Middle East conflict continues to push fuel prices higher. The complete collapse of the fragile ceasefire between the United States and Iran has sent Brent crude surging 23% over two weeks, bringing the benchmark back toward $US90 a barrel. Australian drivers face rising costs, though without the panic buying that marked the initial US-Israel war on Iran in early March.

Market Shifts Signal Rate Hike Pressure

With the RBA now twice as likely to implement another rate increase, financial traders are adjusting their positions accordingly. Markets currently assign a nearly 30% probability of a rate rise on 12 August, up from 16% just two weeks prior. According to ANZ, the likelihood of a hike by November has doubled to 80% over the same timeframe. This shift reflects growing concern about inflationary pressures stemming from energy costs.

Diesel prices have climbed 40 cents in July to approximately $2.10 a litre across major east coast cities, according to Motormouth. The removal of federal fuel excise relief has added another 25 cents to unleaded petrol, bringing it to about $1.75. Global oil stockpiles remain depleted, and analysts warn of an approaching tipping point following Iran’s declaration of “full-scale war” with the United States and Houthi threats to blockade Saudi Arabian oil through the Red Sea.

“In the current dynamic, we believe this will drag on for at least several weeks and possibly longer,” said Luke Yeaman, CBA’s chief economist.

Yeaman noted that the RBA now twice as likely to hike rates reflects the challenging economic landscape. A total lack of trust between warring parties makes it difficult to predict the conflict’s trajectory, which he expects to send a fresh stagflationary pulse through Australia. With inflation already tracking uncomfortably high, the central bank faces mounting pressure to act.

Looking Ahead: Growth and Inflation Outlook

“If we see a prolonged closure of the strait and a big jump in oil prices, that will feed through to higher inflation, but it will also slow growth,” Yeaman explained. “In the short term that could mean the case for one further rate hike is higher.” He cautioned that calls for multiple rate hikes remain overblown, though he warned global oil could reach $US150 a barrel without a negotiated solution by late August or early September.

“Our expectation is that before some of those extreme points are reached that there is some resolution,” Yeaman added. “I expect that if oil prices really spiked again then the government would step in and shield households by reinstating the full fuel excise discount.” Regardless of potential government intervention, higher energy prices and renewed global conflict threaten to further slow an Australian economy already struggling under three rate hikes and a declining housing market.

Yeaman forecast economic growth would decelerate to 1.5% by year-end, down from 2.5% in 2025. “Were you to see a serious escalation in the conflict and a prolonged closure of the strait [of Hormuz], then growth could slow much more sharply,” he said.

Daniel Hynes, ANZ’s senior commodity strategist, noted that the recent oil price drop to the low 70s failed to capture structural supply challenges. He suggested $US80 to $90 a barrel represents a more realistic baseline, with $US100 potentially within reach if conditions deteriorate. Hynes emphasized that technical limits to oil inventories are already being breached in the United States, increasing competition for seaborne cargoes and driving prices upward.

“At the moment there’s a feeling that if it [renewed conflict] doesn’t persist too much longer, they will be able to suffer through this period without too much damage,” Hynes concluded. “Obviously the risks rise day by day; the market is at a critical juncture.” As the RBA now twice as likely to respond to these pressures, all eyes remain on how policymakers navigate this uncertain period.