Reserve Bank of Australia Assistant Governor flags upside inflation risks and weak productivity growth, leaving door open for further tightening.
Reserve Bank of Australia Assistant Governor Christopher Kent indicated inflation risks remain skewed to the upside, aligning with Governor Michele Bullock’s assessment. He suggested further rate hikes could be necessary if these risks materialize, tempering earlier optimism about policy transmission.
Kent highlighted weak productivity growth as a structural challenge, noting it amplifies inflationary pressures for a given level of demand. This complicates the RBA’s task regardless of the current cash rate’s position relative to neutral. His remarks also included an unusual caution on elevated equity valuations, adding a financial stability dimension to the broader risk outlook.
The comments shift the RBA’s tone from confidence in current policy effectiveness to a more hawkish stance, emphasizing uncertainty in the inflation outlook. Markets may interpret this as a signal for prolonged restrictive monetary policy.