The Australian Central Bank (RBA) says the Ukraine-Russia war has the potential to lead to a prolonged rise in inflation and obscure economic prospects, according to meeting minutes released during the Asian session.
The war in Ukraine and the associated rise in energy prices have created additional uncertainty. The main issue is whether the recent price adjustment represents a one-time jump in price levels or the beginning of a continued rise.
Even so, Governor Philip Lowe used a more hawkish tone by saying a rate hike was reasonable this year as Russia’s attack on Ukraine increased the risk for a higher inflation spike and changed views on consumer prices.
In addition, factors to such expectations are also driven by the country's economy which has recovered with low unemployment and a strengthening in consumer spending.
However, unlike other central banks that are struggling to curb inflation, the RBA says it still has time to see further developments.
The central bank is ready to be patient as well as monitor how the factors influencing inflation in Australia develop.
Overall, interest rates were kept at lows of 0.10% and the RBA is seen to be more hawkish about the possibility that an interest rate hike could happen this year.
Even so, the Aussie dollar failed to react to the minutes issued, instead continuing to weaken due to the strengthening US dollar.
