This second batch of comments tempers the more settled tone from Kent’s earlier remarks on rate transmission and neutral rate estimates. Explicitly aligning with Governor Bullock’s view that inflation risks lean to the upside, and floating the possibility of further hikes if those risks materialise, pushes the overall message from “policy is working as intended” toward “policy could still need to do more.” The productivity comment adds a structural dimension: weak productivity growth means a given level of demand generates more inflationary pressure than it otherwise would, directly complicating the RBA’s task regardless of where the cash rate sits relative to neutral. The aside on generous equity valuations is unusual from an RBA official and worth flagging on its own, a financial stability observation that sits alongside, rather than directly feeding into, the inflation and rates discussion, but one that adds a layer of caution to the broader risk picture.
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Kent’s later remarks add a more hawkish edge to his earlier comments, pairing an open door to further hikes with an unusual RBA nod to stretched equity valuations.
Summary:
- RBA Assistant Governor Christopher Kent said Governor Michele Bullock emphasised uncertainty around the outlook and that risks to inflation lean very much to the upside
- Kent said productivity has been very disappointing, which makes the RBA’s job on inflation harder
- He raised the possibility of the cash rate rising further if those upside risks materialise
- Kent also said valuations in some equity markets do seem very generous
Reserve Bank of Australia Assistant Governor Christopher Kent followed his earlier remarks on rate transmission and housing with a more cautious set of comments at the same Reuters Next event on Wednesday, aligning himself with Governor Michele Bullock’s view that risks to the inflation outlook lean firmly to the upside. Kent said Bullock had emphasised the uncertainty around that assessment, and he did not shy away from the implication, explicitly raising the possibility that the cash rate could rise further should those upside risks materialise.
That comment sits somewhat in tension with his earlier observation that the cash rate already sits near the top of the range of central neutral rate estimates the RBA tracks, a reminder that the bank’s tightening bias remains live even as it describes current settings as broadly appropriate. Kent pointed to weak productivity growth as a specific factor complicating the inflation fight, saying productivity has been very disappointing and that this makes the central bank’s task materially harder, since weaker productivity effectively lowers the amount of demand the economy can absorb before generating inflationary pressure.
Kent also offered an aside on financial markets that stood out from the rest of his remarks, saying valuations in some equity markets do seem very generous. The comment, while not tied directly to the inflation and interest rate discussion, adds a financial stability dimension to the RBA’s broader risk assessment and is a notable departure from the central bank’s usual reluctance to comment on asset price levels. Taken together with his earlier remarks on softening housing conditions and AI-driven investment supporting demand, Kent’s full set of comments paints a more complicated picture than the initial headline suggested, one where policy is judged to be working but where upside inflation risk, weak productivity and stretched asset valuations all argue for continued caution rather than an early pivot toward easing.
This article was written by Eamonn Sheridan at investinglive.com.