RBA Moves Highlight Risks Around Policy Tightening
- By Dominique Dwor-Frecaut
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- 3 minutes read
I disagree with the widely held view that the bond market selloff forced the RBA to capitulate and give up its 0.1% cap on the 10yr yield. In my view it is the data that changed both RBA and bond market views. Global and Australian data had been signaling either a faster recovery or higher inflation than expected. Markets don’t have the institutional constraints faced by central banks and the former therefore tend to react to news faster.
So, the sentence in the RBA policy statement “Given that other market interest rates have moved in response to the increased likelihood of higher inflation and lower unemployment, the effectiveness of the yield target in holding down the general structure of interest rates in Australia has diminished.” does not mean that the RBA has been dictated to by markets.
I disagree with the widely held view that the bond market selloff forced the RBA to capitulate and give up its 0.1% cap on the 10yr yield. In my view it is the data that changed both RBA and bond market views. Global and Australian data had been signaling either a faster recovery or higher inflation than expected. Markets don’t have the institutional constraints faced by central banks and the former therefore tend to react to news faster.
So, the sentence in the RBA policy statement “Given that other market interest rates have moved in response to the increased likelihood of higher inflation and lower unemployment, the effectiveness of the yield target in holding down the general structure of interest rates in Australia has diminished.” does not mean that the RBA has been dictated to by markets.
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