Recap: RBA’s Kent: policy is restrictive and working, but risks still skew higher
Taken as a whole, Kent's remarks
- RBA assistant Gov Kent: cash rate increases are having their intended effect
- More from RBA's Kent: Flags upside inflation risk, further hikes possible, warns on equities
read as a central bank confident its tightening is transmitting as intended but unwilling to declare victory, a combination that argues for a steady policy stance near term rather than an imminent shift either way. The explicit alignment with Bullock's upside risk framing, paired with the productivity warning and the flagged possibility of further hikes, tilts the overall tone more hawkish than the initial transmission commentary alone would suggest, and should support the Australian dollar at the margin. The aside on generous equity valuations adds a financial stability layer that sits outside the immediate rates discussion but is worth flagging given how rarely RBA officials comment directly on asset prices. Net, the interview leaves the RBA's tightening bias intact even as it credits current settings with doing much of the intended work.
--- Kent says the RBA's tightening is doing its job, but between Bullock's upside risk warning, weak productivity and stretched equity valuations, the door to further hikes is still very much open.
Summary:
- RBA Assistant Governor Chris Kent told Reuters that monetary policy in Australia is somewhat restrictive and that the tightening delivered through three rate increases earlier this year is working
- Kent said borrowing costs and mortgage payments have risen, established housing market conditions have turned down, and the Australian dollar has appreciated over the year to date, supporting the tightening's effect
- He said aggregate demand growth appears to be slowing, an intended outcome needed to bring inflation back to target
- Kent said the cash rate sits around the top of the range of central neutral rate estimates across the RBA's models, though he flagged considerable uncertainty in those estimates
- He said a higher exchange rate is helping moderate inflation by lowering the domestic price of imports, while substantial data centre and AI-related investment is helping support aggregate demand
- Kent said Governor Michele Bullock has emphasised that risks to the inflation outlook lean very much to the upside
- He said disappointing productivity growth is making the RBA's job on inflation harder, and raised the possibility of the cash rate rising further should those upside risks materialise
- Kent also said valuations in some equity markets do seem very generous
- He said the RBA board will carefully weigh the wide range of factors influencing financial conditions
Reserve Bank of Australia Assistant Governor Chris Kent laid out a fuller picture of the central bank's thinking in an interview with Reuters and at a Reuters Next event on Wednesday, describing this year's tightening as restrictive and working as intended, while simultaneously leaving the door open to further rate increases if inflation risks materialise as feared. The combination captures a central bank crediting its policy settings with real traction even as it stops well short of signalling the job is done.
On the transmission of policy, Kent said the evidence suggests monetary policy in Australia is somewhat restrictive and that the three interest rate increases delivered earlier this year are exerting their intended force on the economy. He pointed to concrete channels through which that is happening, borrowing costs and mortgage payments have risen, conditions in the established housing market have turned down, and the Australian dollar has appreciated over the year to date, helping moderate inflation by lowering the price of imports. Aggregate demand growth appears to be slowing as a result, Kent said, a development he characterised as both intended and necessary to bring inflation back to target. He added that the cash rate currently sits around the top of the range of central neutral rate estimates the RBA tracks across its various models, though he cautioned there remains considerable uncertainty around those estimates. Offsetting some of the demand slowdown, Kent said substantial investment in data centres and AI-related infrastructure has helped support growth in aggregate demand, a dynamic increasingly cited by central banks globally as a source of resilience even as rate-sensitive sectors like housing cool.
Where Kent's remarks took a more cautious turn was in addressing the balance of risks. He said Governor Michele Bullock has stressed that uncertainty remains elevated and that risks to the inflation outlook lean very much to the upside, a view Kent did not distance himself from. He linked part of that risk to disappointing productivity growth, saying weak productivity makes the central bank's task on inflation harder, since a given level of demand generates more inflationary pressure when the economy's capacity to absorb it is constrained. Kent went as far as to raise the explicit possibility of the cash rate rising further should those upside risks materialise, a formulation that sits in some tension with his earlier observation that the rate already sits near the top of neutral estimates. He also offered an unusual aside on financial markets, saying valuations in some equity markets do seem very generous, a comment that adds a financial stability dimension to the RBA's broader risk assessment without being directly tied to the inflation and rates discussion.
Taken together, Kent's comments suggest the RBA views its tightening cycle as having done much of the intended work through weaker housing demand, a stronger currency and slowing aggregate demand growth, but remains unwilling to rule out doing more given upside inflation risks, weak productivity and a financial backdrop that includes stretched asset valuations. Kent said the RBA board will carefully weigh the wide range of factors influencing financial conditions as it determines its next policy steps, a formulation consistent with the bank's recent preference for flexibility over firm forward guidance.
This article was written by Eamonn Sheridan at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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