Reserve Bank of Australia Assistant Governor Christopher Kent said in a speech that mounting evidence of rising global neutral interest rates is casting doubt on how restrictive current policy really is, despite four rate hikes this year. While he remains confident that monetary policy is somewhat tight, he questioned whether it is tight enough.
A higher neutral rate implies that the current 4.6% cash rate may be putting less downward pressure on demand and inflation than policymakers had assumed. This, in turn, strengthens the case for keeping interest rates elevated for longer or potentially tightening further.
Kent’s remarks come as the RBA considers its next move following the September rate increase, which was driven by persistent inflation, higher energy costs linked to the conflict in the Middle East, and ongoing capacity constraints in the economy.
He noted that household demand is weakening, even as business credit growth remains robust, and that recent changes to housing-related taxes are helping to restrain activity in the property sector.
On the labour market, Kent urged caution in interpreting volatile monthly data but acknowledged signs of easing conditions. Employment fell in September, and the unemployment rate rose to 4.7%, its highest level in five years.
