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REPEAT: MNI: RBA Kent: Next Rate Move Up But Not Anytime Soon

Repeats Story Initially Transmitted at 22:57 GMT Mar 13/18:57 EST Mar 13
By Sophia Rodrigues
     SYDNEY (MNI) - The Reserve Bank of Australia is making gradual progress
towards its growth and inflation goals and therefore a rate hike is unlikely
anytime soon, Assistant Governor Christopher Kent said Wednesday.
     Kent made the comments at the Q&A following his speech at a debt capital
markets summit in Sydney on the topic, "Australian Fixed Income Securities in a
Low Rate World."
     Kent, mostly quoting Governor Philip Lowe's previous message, said the next
move in interest rates is likely up, rather than down because the RBA is making
progress towards its goals. But because the progress is expected to be "very
gradual", a rate hike is unlikely "anytime soon."
     Earlier in the speech, Kent talked about the possibility that "search for
yield" and some increase in yields in Australia would occur as spare capacity is
gradually eaten into and inflation rises. He noted that evidence of stronger
wages growth and a prospect of rising inflation might push the U.S. economy in
that direction. Australia could be further from that point, but Kent said his
expectation is that the same forces will come into play here eventually.
     Kent began his speech by noting interest rates on a range of fixed income
securities have risen over the course of recent months. Still, they remain at
historically low levels and spreads between non-government and government debt
have declined to their lowest levels since the global financial crisis, he said.
     According to Kent, the decline in spreads on offshore fixed income assets
is relevant for Australian markets because many of Australian corporations issue
overseas. This offshore issuance facilitates capital inflows, which are the
financial counterpart to Australia's current account deficit. The decline in
spreads offshore also matters because they are highly correlated with spreads in
the domestic market, he said.
     Kent said it is hard to say if there is excessive risk-taking in fixed
income markets. "It's not clear that the relatively low level of spreads in
fixed income markets represents irrational mispricing of risk or is, by itself,
a cause of concern," he said. 
     Still, it is possible that we could see a noticeable pick-up in financial
market volatility, a sharp re-pricing of assets and, as a result, a tightening
in financial conditions, including higher spreads for corporate issuers, he
warned.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com

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