(Bloomberg) -- Australia’s central bank will probably tighten monetary policy “several” times this year to stave off inflation, with surging oil costs fueled by the Russia-Ukraine conflict further adding to price risks, former Reserve Bank board member Warwick McKibbin said.

“The inflation numbers in Australia, although much lower than the rest of the world, are still towards the top end” of the RBA’s 2-3% target, said McKibbin, who served on the board from 2001-2011 and is a professor of economics at Australian National University. “And the oil price shocks will obviously put upward pressure on that.” 

McKibbin joins a chorus of voices calling for an earlier and faster rate tightening cycle, even as RBA Governor Philip Lowe, his deputy Guy Debelle and Treasury Secretary Steve Kennedy reiterated in recent weeks their support for a patient policy stance given wages weakness. The dovishness of Australian policy makers is likely to be reinforced by the crisis unfolding in Ukraine.

RBA Sees Inflation Overshooting Target as ‘Acceptable Risk’ (1)

McKibbin, who is also a non-resident fellow at the Brookings Institution in Washington, said there was a risk the RBA, along with the Federal Reserve, delayed their policy tightening timetable in response to Russia’s military action. The conflict, which sent the oil price past $100 a barrel for the first time since 2014, is a “very bad confluence of shocks,” he said.

“On top of the Covid-19 shocks and the worries of monetary tightening in major economies, we have now got an inflationary shock coming from higher oil prices out of Russia and an increase in geopolitical risks,” he said. “It may delay tightening of monetary policy, I’d think, particularly from the Fed.”

Once clarity emerges on Ukraine, McKibbin sees the tightening cycle in Australia pushing the cash rate higher than markets are currently predicting.

Money markets are pricing in the RBA beginning its tightening cycle in June with the cash rate seen at 1.5% in a year’s time and 2.5% in two years. McKibbin, by contrast, sees it potentially climbing higher than that. 

When traders were first pricing RBA rate hikes last year, McKibbin said he thought the market had “overdone that.” But now, given recent data, global inflation and tightening by other central banks, he said the market’s pricing wasn’t so aggressive.

“In our modeling, the underlying real interest rate in real terms is probably about 1.5%,” McKibbin said. “And if inflation is sitting at 2% then a neutral rate would be around, let’s say, 3%.”

©2022 Bloomberg L.P.