Monetary policy in Australia remains “somewhat restrictive,” with the effects of earlier rate hikes still dampening demand and inflation, Reserve Bank Assistant Governor Christopher Kent said in a speech. He pointed to higher borrowing costs and mortgage repayments, a cooling housing market, and an appreciation of the Australian dollar so far this year as evidence that growth in aggregate demand is slowing. Kent emphasized that this moderation is both “intended and needed” to return inflation to target.
He noted that while estimates of the nominal neutral interest rate are inherently uncertain, they nonetheless indicate that the current policy stance is restrictive. At the same time, overall financial conditions are being shaped by more than just the cash rate. The housing sector, for example, has softened by more than would be expected from interest rate increases alone, reinforcing the drag on activity. In contrast, robust global demand associated with AI-related investment and higher bond yields abroad could provide some offset.
Kent said the central bank will continue to assess these opposing forces as it refines its economic outlook and frames its future policy decisions.
