RBA's Kent Says Rate Hikes Are Working, Spending Cools
RBA's Kent says recent rate hikes are working as intended, slowing spending and housing credit, with full effects still to come.
A top Reserve Bank of Australia official said on Thursday that the central bank's three rate increases this year are having the desired effect, with tighter financial conditions beginning to weigh on consumer spending and broader economic momentum.
Speaking at a Varta Wire NEXT Newsmaker event in Sydney, Assistant Governor Christopher Kent noted that it would take "some time for tighter monetary policy to have its full effect on economic activity and inflation." He pointed to a slowdown in housing credit growth and a noticeable drop in new home lending as early signs that the policy is working.
While not all financial indicators are moving in the same direction, Kent said the bank's overall assessment is that financial conditions are now somewhat restrictive. He added that the current cash rate sits near the top of the range of central estimates for the neutral rate, though he acknowledged considerable uncertainty around those estimates.
The RBA left interest rates unchanged at 4.35% this week, following a cumulative 75-basis-point increase since February aimed at curbing persistent inflation. Governor Michele Bullock has stressed that the board remains concerned inflation may not cool as quickly as hoped and is prepared to raise rates again if necessary.
Core inflation stood at an annual 3.6% in the June quarter, still well above the RBA's 2% to 3% target band. Markets are pricing in roughly a 75% chance of another hike to 4.60% by December, though many investors expect that would mark the end of the current tightening cycle.