SYDNEY: The Reserve Bank of Australia (RBA) “will do what’s necessary” to bring inflation back down to its 2% to 3% target, governor Philip Lowe said, in a hawkish signal that interest rates have further to rise to achieve that goal.

       Inflation could accelerate to as much as 7% by year’s end and is unlikely to begin slowing until the first quarter of 2023, Lowe said in an interview with Australian Broadcasting Corp on Tuesday evening.

       At the same time, he expressed confidence in households’ ability to cope with rising rates.The comments in a rare TV interview prompted Goldman Sachs Group Inc to predict the RBA would raise rates by 50 basis points in August and September, from a previous expectation of 25 basis points in both months.

       That’s on top of its forecast 50-point hike in July from the current cash rate of 0.85%.

       “We interpreted the substance and timing of governor Lowe’s comments as consistent with a more front-loaded tightening cycle,” said Goldman Sach Australia chief economist Andrew Boak.

       Following the half-point hikes, Goldman expects the RBA to then slow the pace to 25-basis point increases in October, November and December for “a 3.1% terminal rate by year-end.”

       Boak cited Lowe steering clear of referring to still-slow wages growth and his failure to push back on aggressive money market bets for the cash rate to hit 3.6% by December in the interview.

       The governor told ABC TV that it was unclear how far borrowing costs will need to rise to bring inflation back to target.

       “Australians need to be prepared for higher interest rates,” he said, adding that it would be “reasonable” to expect the cash rate to climb to 2.5% at some point.

       “How fast we get to 2.5%, indeed whether we get to 2.5%, is going to be determined by events.”

       The RBA wrong-footed markets last week when it hiked by a bigger-than-expected 50 basis points and signaled further increases to come. Most economists are now predicting it will raise by another half-point next month.

       The central bank is among more than 50 monetary authorities that have raised by at least a half-point in one move this year.

       The US Federal Reserve is increasingly expected to increase rates by 75 basis points at this week’s meeting as US inflation escalates further.

       The RBA’s outsized hike came as Australian power prices are soaring and labour costs are pushing higher, exacerbating existing inflation pressures.

       High mortgage payments will further burden households in an economy where the household debt-to-income ratio is around 186%.

       “At the individual level some people have taken loans that they may not have wanted to take out in retrospect, but the overall picture, which is really very much the focus of the Reserve Bank, is a pretty resilient economy,” said Lowe. — Bloomberg