A$ adjustment assisting economy: RBA's Christopher Kent
Staff reporterDecember 7, 2020
The Reserve Bank assistant governor Christopher Kent says the recent depreciation in the Australian dollar has been "helpful" at a time where inflation remains weak and the economy is still using up spare capacity.
“While the exchange rate is still within the relatively narrow range of the past few years, the recent depreciation is helpful at the margin given that there remains spare capacity in the economy and inflation remains below target,” Reserve Bank of Australia Assistant Governor Christopher Kent said in a speech in Melbourne last Friday hosted by FX provider XE.
The address traced the fluctuating outlook in recent months as “modest revisions” to global economic growth and inflation combined with greater attention to downside risks from central banks and investors.
"After a lengthy period of relative stability, global financial markets have been more volatile over the past few months.
"The incoming data from around the end of 2018 was associated with a tightening in financial conditions: global equity prices declined; corporate credit spreads widened; issuance of corporate debt eased; and volatility picked up across most markets.
"And in the space of only a couple of months, the market's expectations for monetary policies changed markedly and there was a notable downward shift in yield curves."
Kent noted local money markets switched their assessment of the next move in the cash rate to “more likely to be down than up.”
Earlier this month Governor Philip Lowe tempered the bank's more optimistic language when the RBA kept the cash rate at a record low 1.5 per cent for a 30th month, but dropped its longstanding prediction that an improving economy meant the next move was likely to be upwards.