No Hawkish Signals From Ellis On Neutral Rate, In Line With Lowe's Views

RBA Assistant Governor (Economic) Ellis’ latest address is a rangy discussion covering the concept of the neutral interest rate. At first glance, much of her thought-process is in line with previous commentary deployed by RBA Governor Lowe. Key verses include:

• “Because the policy rate represents the risk-free short-term interest rate, it embeds people’s underlying time preference. So we should expect the neutral real rate also to be positive, though it could be small. And when you add in the condition that inflation should be at target, it implies a nominal neutral rate in Australia of at least 2½ per cent.”
• “The neutral rate is an important guide rail for thinking about the effect policy might be having. It is not necessarily a prescription for what policy should do.”
• “Current inflation is very high, and expected to stay high in the short term. But beyond the next year, inflation expectations remain well anchored inside the target range, both here and overseas.”