RBA's Kent says neutral rates appear to be rising, questions whether policy is restrictive enough

Reserve Bank of Australia Assistant Governor (Financial Markets) Christopher Kent said on Monday there was a “reasonable indication neutral rates are increasing domestically and globally”, FXStreet reported. He spoke at a fireside chat at the Commonwealth Bank’s Global Markets Conference in Sydney, which began at 11:05pm GMT; the RBA has published audio of the event.

The neutral rate is the level of interest rates that neither stimulates nor restrains the economy. Kent also said it was “difficult to pinpoint” the neutral rate “amid high uncertainty”, according to FXStreet.

Is policy restrictive enough?

Kent said he was confident monetary policy was somewhat restrictive but questioned whether it was restrictive enough, investingLive reported. The cash rate is 4.60 per cent after the RBA raised it by 25 basis points on 29 September, its fourth increase this year.

According to investingLive, Kent said household demand was softening while business credit growth remained strong, and described recent tax changes affecting housing as helpful for monetary policy.

Labour market and market reaction

Kent said he was cautious about reading too much into monthly employment figures but that the labour market had become less tight, investingLive reported. He said the market move after last week’s weaker-than-expected jobs report, which included a lower Australian dollar, lower short-term interest rates and reduced expectations of a near-term rate rise, made sense.

The September labour force figures showed the unemployment rate rising to 4.7 per cent, as we reported on Sunday.

The Australian dollar was trading 0.28 per cent higher at about US69.65 cents at the time of FXStreet’s report, as of about 11:22pm GMT.

What comes next

AAP reported that Kent’s appearance was one of several by RBA officials this week, with Deputy Governor Andrew Hauser due to speak at a Citi conference on Wednesday, in a week without major domestic economic data. The September-quarter consumer price index is due on 28 October, and the RBA’s next cash rate decision is scheduled for 3 November.