RBA 'unconcerned' by rising bond yields
The decision by the Reserve Bank of Australia (RBA) to hold rates at 0.1% indicates it is “unconcerned” by the threat of rising bond yields.
At the most recent meeting, the RBA reiterated it would leave monetary policy unchanged, it had already reiterated rates would likely at this rate until 2024 “at the earliest” or when inflation was within the 2% to 3% target range.
This was despite rising bond yields in the US which had caused concern about the likelihood of increased inflation and whether that would necessitate the need to raise interest rates earlier than expected.
In the meeting minutes, RBA governor Phil Lowe, said: “Sovereign bond yields have increased over recent months due to positive news on vaccines and the additional fiscal stimulus in the United States. Inflation expectations have also lifted from near record lows to be closer to central banks’ targets. The three-year government bond yield in Australia is at the board’s target of 10 basis points and lending rates for most borrowers are at record lows”.
GSFM investment strategist, Steve Miller, said: “In so doing the RBA, like most of the global central banking fraternity, is unconcerned by market expectations of inflation rebounding. While markets are anticipating a rebound in inflation, it is from an extraordinarily low base and to a level that central banks would likely welcome.
“In that context the current market-based measures of inflation expectations and what the world’s central banks, including the RBA, are seeking to achieve on inflation are entirely reconcilable. In that context too, central banks are not yet overly concerned by the recent rise in global government bond yields.”
He added the decision by the central bank was also a way to avoid an “unwelcome movement” in the Australian dollar as this could frustrate the task of lowering the unemployment rate.
AUTHOR
Laura Dew
Recommended for you
While model figures provide valuable insights on how advisers can draw benefits from managed accounts, Zenith’s head of portfolio solutions has argued that professional judgement and quality research are key to successful implementation.
While the number of financial services staff using AI has almost doubled in the last year, two surveys have revealed that fast-paced AI adoption has led to governance gaps and growing concerns about job security.
Entireti has partnered with Striver to connect graduates and job seekers with its advice network to support the placement of new talent.
ASIC has cancelled the Australian financial services licence of Ivy League Capital Pty Ltd, a firm authorised to provide advice in relation to managed investment schemes.
