RBA's Kent Warns of Further Rate Hikes Amid Persistent Inflation Threats

Australia's Reserve Bank Assistant Governor Christopher Kent has warned of further policy tightening due to persistent inflation threats. Speaking at a Reuters NEXT Newsmaker event in Sydney, Kent stated that the current cash rate of 4.35% is considered 'somewhat' restrictive, but uncertainties remain.

Kent emphasized that the risks to inflation are skewed higher and that 'a lot of things' would need to go right for rates to be on hold. He specifically mentioned the Strait of Hormuz and productivity growth as key factors that must materialize to avert another rate increase.

The Reserve Bank of Australia (RBA) recently left interest rates steady at 4.35% for a second meeting, having already hiked by 75 basis points since February in an effort to restrain inflationary pressures. Markets imply around a 54% chance of a further increase to 4.60% by December, although investors assume this will likely mark the end of the tightening cycle.

Kent also noted that the three rate hikes are working as intended to slow down demand, with housing credit growth starting to slow due to falls in property prices and new home lending. However, he cautioned that the boom in AI-related investment globally could work in the opposite direction, potentially requiring further monetary policy action.