Australia’s central bank anticipates that the drag from tight financial conditions is lessening, which should support the economy in maintaining near full employment while inflation moves back toward its target range. This outlook was presented by Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent. Kent, the RBA’s lead on financial markets, pointed to indicators such as narrowing loan spreads and households increasing mortgage payments due to lower interest rates as evidence of these easing conditions.
Credit growth has also seen an uptick, driven by increased housing demand. Additionally, strong competition among lenders and favourable funding costs have provided a boost to business borrowing. “Our forecasts imply that the tightness in financial conditions has eased, which will help to keep the economy in balance in the period ahead, with full employment and inflation moving toward the centre of the target range,” Kent stated in a speech to the CFA Society Australia in Sydney on Thursday. The RBA’s inflation target is within a 2-3 per cent band.
Kent’s remarks follow comments made by his colleague Sarah Hunter a day earlier, who suggested that Australia’s underlying inflation for the September quarter is likely to be stronger than initially projected by the RBA, signaling a slightly more hawkish perspective. These combined statements highlight the central bank’s belief that recent policy easing, which includes three interest rate cuts this year, along with improving credit conditions, are assisting the economy in achieving a better equilibrium after a period of constraint.
Officials believe this is consistent with inflation gradually returning to the desired target. However, they have also cautioned that the economic outlook remains uncertain as they await the release of third-quarter price data.
