Christopher Kent: Reassessing Australian financial conditions
Address by Mr Christopher Kent, Assistant Governor (Financial Markets) of the Reserve Bank of Australia, to KangaNews Debt Capital Market Summit, Sydney, 26 March 2026.
Thank you to KangaNews for the invitation to speak today.
Every six weeks, the Monetary Policy Board assesses the state of the economy and its outlook and sets monetary policy to achieve low and stable inflation and full employment. It must judge the level of the cash rate that will deliver financial conditions consistent with those goals. Financial conditions are a broad concept, capturing the cost and availability of finance for households and businesses, as well as other financial influences on economic activity such as the exchange rate and asset prices. Each of these elements are influenced by the cash rate and its expected path as part of the standard monetary policy transmission process. The stance of monetary policy is considered to be 'restrictive' if financial conditions are assessed to be restraining demand and 'accommodative' if financial conditions are assessed to be stimulating demand.
Assessing overall financial conditions is challenging because they depend on a broad range of factors, each of which can affect spending in the economy in different ways. In addition, financial conditions affect demand with some lag, making it hard to assess how restrictive or accommodative monetary policy is in real time. Moreover, structural changes in the financial system and the economy mean that a given level of the cash rate can become more or less restrictive over time. For these reasons, we use a range of approaches to assess financial conditions and update our judgement on the overall stance of policy as new information arrives.