RBA Warns Middle East Conflict Risks Economic Damage

In Sydney on Thursday, Reserve Bank of Australia Assistant Governor Christopher Kent warned that a prolonged Middle East conflict could inflict mounting economic damage, urging policymakers to prevent surging energy prices from undermining inflation expectations.

Kent delivered the remarks during a speech amid escalating tensions in the region, particularly the Iran war, which has disrupted global oil trade and driven petrol prices to record highs in Australia. He noted that the conflict has already tightened financial conditions through heightened uncertainty and market volatility, while also delivering a supply-side shock that risks fueling inflation. "Central banks cannot change that," Kent said. "But they can ensure that the initial rise in prices does not lead to a rise in longer-term inflationary expectations and extended inflationary pressures."

The comments come as the RBA navigates persistent inflationary pressures. Earlier this month, the central bank raised its cash rate to 4.1 percent for the second consecutive meeting, reversing two of the three cuts implemented last year. Inflation had remained elevated even before the latest geopolitical disruptions, prompting the...