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RBA’s Kent says tightening is working, but restrictiveness is hard to gauge

Kent said the slowdown is intended to bring inflation back to target, but he warned that cash rate alone does not capture how restrictive financial conditions have become as global forces move in opposite directions.

Reported · Written up by our desk · Central Banks

RBA Assistant Governor Christopher Kent said in a speech that monetary policy is “somewhat restrictive” and that earlier tightening is working through the Australian economy, citing higher borrowing costs and mortgage payments, a weaker established housing market, a stronger Australian dollar, and slowing aggregate demand, according to Action Forex.

Kent added that the slowdown is deliberate, describing it as intended and needed to bring inflation back to target, and he noted that estimates of the nominal neutral rate, while imprecise, are consistent with the current policy stance being restrictive.

At the same time, Kent cautioned that the cash rate alone does not determine how restrictive financial conditions are, pointing to housing that appears to have softened by more than recent interest rate increases would imply, which could mean conditions are tighter than expected.

He also highlighted offsetting global forces, including resilient demand linked to AI-related investment and higher offshore yields tied to rising public debt, which could make Australian financial conditions less restrictive than otherwise, the outlet reported. Kent’s comments reinforced the RBA’s policy optionality rather than indicating the tightening cycle is finished, with the board expected to continue carefully weighing a wide range of factors as it updates its outlook.

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