Australia’s 10-year government bond yield climbed to around 4.97%, hovering near its highest level since July 2011, as traders priced in a potential interest rate hike by the Reserve Bank of Australia (RBA) this week amid rising inflation risks. Expectations for tighter policy strengthened after Deputy Governor Andrew Hauser recently noted that inflationary pressures stemming from the conflict involving Iran were “not a helpful development” for the RBA’s policy outlook.
The recent jump in oil prices has further boosted inflation expectations, which were already drifting higher, complicating efforts to return inflation to target. Treasurer Jim Chalmers also cautioned that Australia’s inflation rate could surpass 4.5%, well above the RBA’s 2%–3% target range.
Beyond the upcoming rate decision, investors will closely scrutinize the central bank’s policy guidance. Markets are currently pricing in three additional increases by year-end, which could push the cash rate to around 4.6%, exceeding the previous peak of 4.35%.
