"" Inflation Risks Remain High
A senior Australian central banker has warned of the risk of further policy tightening, citing inflation threats that remain on the upside. Reserve Bank of Australia Assistant Governor Christopher Kent said the current cash rate of 4.35% is judged to be "somewhat" restrictive, but uncertainties remain.
What Needs to Happen for Rates to Remain Steady
Kent stated that "a lot of things" will have to go right for rates to be on hold. These include the Strait of Hormuz opening up in reasonable time and productivity growth picking up.
Current Interest Rate Outlook
The RBA left interest rates steady at 4.35% for a second meeting, having already hiked by 75 basis points since February. 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.
Financial Conditions Update
Kent also gave an update on financial conditions, noting that the three rate hikes were working as intended to slow down demand. Housing credit growth has started to slow, with a noticeable decline in new home lending, which will in time start to discourage spending.
Global Factors to Watch
The boom in AI-related investment globally could work in the opposite direction, Kent noted. Market pricing for the cash rate has eased in recent months, while credit remains readily available to banks, households, and businesses.
