Residential properties in view of the Sydney Central Business District (CBD) skyline in Sydney, Australia, July 10, 2025. REUTERS/Hollie Adams

SYDNEY (Reuters) -A senior Australian central banker said on Wednesday the country's financial conditions were influenced by global factors, with low equity risk premia and credit spreads suggesting conditions may be easier than otherwise.

In a speech in Sydney, Penelope Smith, head of international department at the Reserve Bank of Australia, said the cash rate is not the only influence on the cost of finance in Australia, but the extent of impact from international developments was highly uncertain.

The structure of the financial system, which is dominated by banks, could mean the developments in capital markets are less important for financial conditions than in other economies like the United States, Smith said.

"There is a lot of uncertainty about where neutral rates are and where they are going. What we can perhaps conclude, though, is that they have not fallen since the pandemic and may have even risen," she added.

KEY DETAILS

* Smith also gave a review of international markets over thepast year. She said there is little evidence of a significantreallocation away from U.S. dollar assets but some marketparticipants are looking to manage increased risks around theU.S. dollar. * She said central banks in emerging markets have beenincreasing the share of gold in their reserves since Russia’sreserves were frozen in 2022 after the Ukraine war and thistrend may have further to run. * In conclusion, there is a need to be prepared forpotential episodes of volatility and market dislocation, shesaid.

CONTEXT:

* The RBA has cut interest rates three times this year to3.6% but an inflation surge in the third quarter has fuelledexpectations that financial conditions are no longerrestrictive. Financial markets imply less than a 50% probabilitythat the RBA could deliver one last cut in May next year. * The key question facing the RBA is about where the neutralrate is - a level of interest rates that either stimulates ordrags on the economy. The estimates are wide-ranging but the RBAis hoping monetary policy remains slightly restrictive to bringinflation back to the 2-3% target band.

(Reporting by Stella Qiu; Editing by Lincoln Feast)