Christopher Kent: The financial system and monetary policy in Australia

Text of the Sir Leslie Melville Lecture by Mr Christopher Kent, Assistant Governor (Financial Markets) of the Reserve Bank of Australia, at the Australian National University, Canberra, 18 November 2024.

The views expressed in this speech are those of the speaker and not the view of the BIS.

I thank Simon Grant and the Australian National University for the kind invitation to be here today. It is an honour to present the annual Sir Leslie Melville Lecture at my alma mater.

Melville was the first economist at the Reserve Bank of Australia. He established the precursor for Economic Group, which is responsible for macroeconomic analysis, forecasting and policy advice. I spent much of my career there, including as the RBA's chief economist. I also helped set up the Financial Stability Department, and for some years now, I have been overseeing Financial Markets Group.

Today I will cover some key issues that have garnered my attention in those roles.

I will start with the observation that despite significant structural differences across economies, including some relatively unique features of the Australian financial system, there is no evidence that monetary policy is stronger in Australia than in other advanced economies. This finding may appear to be at odds with the comparatively large stock of variable rate mortgage debt carried by Australian households and thus their exposure to significant interest rate risk. But this apparent conflict can be reconciled when one considers the various ways that interest rate risk is managed in Australia, as well as the effects of the other important channels of the transmission of monetary policy. After stepping through the arguments in more detail, I will finish with some observations on forward guidance and some reasons why it has been used somewhat differently by the RBA than many other central banks.