Mr Kent was introduced by Commonwealth Bank’s Group Executive of Institutional Banking and Markets, Andrew Hinchliff, who framed the keynote speech by noting that factors such as high inflation, mounting sovereign debt, war in Ukraine, disruption to global supply chains and climate change add up to “one of the most uncertain times I’ve experienced [in my career]“.
“I can’t think of many better people to speak to about everything that’s going on in the world today than Chris,” said Mr Hinchliff.
Mr Kent’s keynote, delivered at the Commonwealth Bank’s headquarters in Sydney, began by explaining how high inflation reflects “supply disruptions coupled with strong demand” and has had an “unprecedented” response from central banks around the world triggered.
Mr Kent described recent hikes in the Reserve Bank’s interest rate target (from 0.1% in April to 2.6% in October) as “significant and rapid”, adding that the board expects further rate hikes.
“The size and timing of rate hikes in Australia will depend on the incoming data – including how household spending reacts to tightening financial conditions, which is still working its way through the system,” Mr Kent said. “Rate hikes will also depend on the inflation outlook and the labor market.”
His address delved extensively into issues related to inflationary pressures, in particular how the ‘long shadow’ of the end of the mining investment boom has contributed to slower-than-expected wage growth; and the impact of the significant US dollar appreciation in 2022.
The keynote was followed by an in-depth Q&A, which Mr Hinchliff began with a question on the post-pandemic domestic bond market, followed by a question on how well Australian mortgage holders are expected to cope with fast interest rates.
“Most households will make it, but of course all their budgets are under pressure from rising interest rates and high rates of inflation,” Mr Kent said, noting that many borrowers in Australia are well ahead of their planned payments and only likely will be a small portion of borrowers who will struggle. “We will monitor the impact of increased interest rates on household spending – and remember, we actually want this to have an impact on household spending.”
Other questions from the audience to Mr Kent included the impact of climate change on Australia’s productive capacity; the potential “lag effects” of rising interest rates on household spending; and the prospects of an Australian recession.
“We don’t expect a recession, but there’s a lot of uncertainty – there always is, but especially now, and inflation needs to come down,” Kent said. “So it’s a very narrow path.”
Held in Sydney and Brisbane for five days, the Global Markets Conference invites policymakers, rating agencies, issuers and investors from Australia and around the world to discuss key economic issues. The 2022 conference, the event’s 12th year, marks the first time it will be held in person since the pandemic began.
Read the transcript of Mr Kent’s speech on the Reserve Bank of Australia’s website.
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