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In an address to Finance & Treasury Association, Christopher Kent, Assistant Governor (Financial Markets), and in a speech titled, The Usual Transmission – Monetary Policy and Financial Conditions, he said that the RBA are inflation targeters and are not targetting unemployment while suggesting that negative rates is unlikely.  

Additional comments:

  • Recent broad-based easing in financial conditions will support demand.
  • More spare capacity than anticipated.  
  • Lower rates have worked to pull down AUD, despite firm commodity prices.  
  • Bank funding costs have declined to record lows.
  • Banks passed on most of rate cuts to depositors and borrowers.
  • Variable mortgage rates have fallen by 44 bps on average, consistent with past.
  • Approvals for new home loans rose broadly in June amid improving housing market.
  • We are inflation targeters.  
  • Unlikely to need negative rates in Australia.
  • Not all policies overseas are appropriate for Australia.  
  • Need for unconventional policies unlikely, but possible.
  • Negative rates at more extreme end of unconventional policy.

FX implications:

Interesting that he has emphasised a focus on inflation because not too long ago, the unemployment rate was the trade. The fact that he has said that it is unlikely to need negative rates in Australia, but is possible, tilts the balance in the Aussie’s bulls favour. AUD/USD is higher on the headlines,  but not by much – +0.05%