RBA's Kent: Policy Tightening Working, But Upside Inflation Risks Remain

RBA Assistant Governor Chris Kent stated that monetary policy in Australia is somewhat restrictive and that the tightening delivered through three interest rate increases earlier this year is working as intended.

Kent pointed to concrete channels through which the policy is exerting its force, including rising borrowing costs and mortgage payments, a downturn in established housing market conditions, and an appreciation of the Australian dollar over the year to date.

This has helped moderate inflation by lowering the domestic price of imports, while also slowing aggregate demand growth, which Kent characterized as both intended and necessary to bring inflation back to target.

However, Kent warned that risks to the inflation outlook lean very much to the upside, citing disappointing productivity growth and the possibility of further rate increases if those risks materialize.