Christopher Kent: Australian financial conditions - how do we judge how tight or easy they are?

Address by Mr Christopher Kent, Assistant Governor (Financial Markets) of the Reserve Bank of Australia, to the CFA Society Australia, Sydney, 16 October 2025.

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

Introduction

I would like to thank the CFA Society for the opportunity to speak here today.

A key part of the Monetary Policy Board's deliberations is to assess whether financial conditions are tight, easy or neutral in terms of their effect on aggregate demand. It then determines whether those conditions are appropriate to achieve its goals of full employment and low and stable inflation, and adjusts the cash rate target if needed.

Today, I'll speak about three key building blocks we use to assess financial conditions. While the cash rate target is a good starting point, it is not a reliable guide because it does not account for other factors affecting financial conditions, including structural changes in the economy. Hence, it is worthwhile to:

• compare the cash rate with estimates of the neutral interest rate, although these estimates are highly uncertain
• consider a broader set of financial indicators, which also help to track the transmission of monetary policy through the economy
• examine the RBA's macroeconomic forecasts, which incorporate measures of financial and economic conditions.