Australia’s financial conditions may be looser than they appear — thanks to global market dynamics — even though the official cash rate is holding at 3.6 percent, a senior central-bank official said on Wednesday.

In a Sydney speech, Reserve Bank of Australia (RBA) international-department head Penelope Smith highlighted that low equity risk premia and compressed credit spreads internationally have helped maintain favourable financing conditions at home.

([Reuters][1]) Smith cautioned, however, that global developments remain unpredictable.

While the cash rate remains an important determinant of financing costs in Australia, it is not the sole factor.

The structure of Australia’s largely bank-centric financial system means that global capital-market shifts do not always translate directly into local borrowing costs — complicating the RBA’s task of judging whether financial conditions are genuinely loose or restrictive.

([Reuters][1]) She also addressed the question of neutral interest rates — the level at which monetary policy is neither stimulus nor drag on the economy.

Smith noted that there is “a lot of uncertainty” about where neutral rates lie today, but said the evidence suggests they have not fallen since the pandemic and may even have risen, implying the current cash rate may not be as restrictive as once thought.

([Reuters][1]) Smith reviewed broader international market developments over the past year, observing that despite significant global risks — including geopolitical tensions, shifts in trade policy, and macroeconomic uncertainty — there has been little evidence of widespread reallocation away from US-dollar assets.

At the same time, she noted a trend among some emerging-market central banks toward increasing their holdings of gold reserves, a move partly motivated by the freezing of Russia’s reserves in reaction to the war in Ukraine — a pattern that could continue.

([Reuters][1]) Her remarks come as the RBA appears increasingly reluctant to count on further rate cuts.

Since February the bank has cut rates three times, but analysts say a sharp inflation rebound and resilient financial conditions are likely to keep monetary policy at current levels for the foreseeable future.

([Reuters][1]) The message from Australia’s central bank is clear: even with a relatively elevated cash rate, favourable global conditions are helping to loosen the financial environment, though the underlying uncertainty about global risks and the neutral rate complicates forecasting.

As markets and households digest this view, all eyes will be on the bank’s December decision and whether it will dominate caution or begin to reconsider the path ahead.