Restrictive Financial Conditions Needed To Bring Inflation Pressures Down

RBA Assistant Governor Kent (Financial Markets) has delivered a speech focused on financial conditions. See this link here.

• Kent notes current financial conditions are restrictive in Australia, which is line with the RBA's cumulative tightening efforts since 2022.
• Households are facing more pressure relative to businesses, particularly large ones. Such pressures are weighing on aggregate domestic demand, but this is needed to bring demand and supply back closer to balance and bring lower inflation outcomes. Households with mortgages are feeling pressure, although most are meeting their debt obligations.
• Kent states that from a policy standpoint: "While recent economic data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation. Hence, with regards to the path of interest rates, the Reserve Bank Board is not ruling anything in or out."
• On estimates of the neutral cash rate, the RBA chart appears to suggest its rests around 3.5% based off the average of the RBA model estimates of the neutral rate), Indeed none of the model estimates appear above 4%. This compares to the current target cash rate level of 4.35%.
• Still, Kent stresses that there is considerable uncertainty with estimating the neutral rate and that it can change over time.