SYDNEY (Reuters) -Australia’s central bank is seeing signs that financial conditions are loosening after three interest rate cuts this year and credit is readily available to households and businesses.
In a speech in Sydney on Thursday, Reserve Bank of Australia Assistant Governor Christopher Kent said the central bank’s forecasts in August had been based on market pricing for more policy easing, but that outlook was subject to considerable uncertainty.
“We will continue to reassess it in light of what the incoming data mean for the economic outlook and evolving risks,” Kent said.
The RBA has cut interest rates three times this year to 3.6% but recent data has surprised on the strong side with disinflationary pulses stalling and consumers continuing to spend. Housing prices, in particular, have surged to new record highs.
Kent downplayed the concept of a neutral rate – where policy is neither restrictive or stimulatory – arguing that it was not a suitable guide to monetary policy with estimates ranging widely from 1% to 4%.
“We can have some confidence that cash rates well above the range of central estimates would constrain aggregate demand. But we can be less certain for rates closer to or within that range, as is currently the case,” said Kent.
Given those limitations, the central bank is also looking at financial indicators such as banks’ funding costs, household credit and business debt, which showed early signs of responding to the rate cuts this year.
(Reporting by Stella Qiu; Editing by Kim Coghill)
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