Reserve Bank of Australia Assistant Governor Christopher Kent has raised questions about the restrictiveness of the central bank's monetary policy, despite four interest rate hikes this year. In a recent speech, Kent pointed to growing evidence of rising global neutral interest rates, suggesting that the current 4.6% cash rate may not be as restrictive as previously assumed.
Kent acknowledged that policy is somewhat tight but expressed uncertainty over whether it is tight enough to curb inflation and demand effectively. A higher neutral rate could mean the cash rate is exerting less economic drag than policymakers expect, potentially strengthening the case for keeping rates elevated or even tightening further.
The RBA is currently weighing its next move following September’s rate hike, with persistent inflation, rising energy costs due to Middle East conflict, and capacity pressures influencing the decision. Kent noted that household demand is softening, while business credit remains strong, and housing tax changes are supporting restraint.
On the labor front, Kent cautioned against over-interpreting monthly employment data but acknowledged signs of easing. September saw a decline in employment, with the unemployment rate reaching 4.7%, the highest level in five years.