Kent's signal wasn't explicitly dovish, but rather closer to a pause in hawkish sentiment. The core message can be summarized as follows: current interest rates are already limiting, the effects of rate hikes are becoming apparent, and therefore the RBA has the capacity to observe for the time being;
However, inflation risks remain skewed to the upside, and the door to further rate hikes remains open.
The RBA has raised interest rates by a cumulative 75 basis points this year, bringing the cash rate to 4.35%. Kent stated that current interest rates are close to the upper limit of the neutral interest rate range estimated by various models, while the housing market is clearly weakening, indicating that tightening is suppressing demand; a stronger Australian dollar can lower import prices, further helping to cool inflation. This aligns with the logic behind the RBA's decision this week to pause rate hikes and assess the effects of previous tightening.
On the other hand, weak productivity is limiting the economy's supply capacity. The latest RBA data shows core inflation remains at 3.6%, above the 2%-3% target range, and the RBA clearly believes that risks remain skewed to the upside.
