The Reserve Bank of Australia has broken the yield curve management policy and has become one of the first major central banks to combat post-pandemic price hikes.

NS Central bank said On Tuesday, after a week of turmoil in the short-term bond market, where yields soared after the RBA refused to meet the cap, it stopped trying to keep yields on 3-year bonds at 0.1%.

This shift made RBA one of the first central banks from developed economies, tightening monetary policy in the wake of a pandemic. Pressure on the Bank of England Consider rising interest rates when we meet on Thursday.

"The decision to cut off the yield target reflects faster progress towards economic improvement and the inflation target," said RBA Governor Philip Lowe after a meeting of the central bank's board of directors. ..

However, while the RBA eased control of the yield curve, it did not rush to raise short-term interest rates and promised to hold interest rates until inflation remained within the 2-3% target range.

"This requires the labor market to be tight enough to generate significantly higher wage increases than it is today," Rowe said. He added that it would probably take some time to achieve that, and that the central bank is ready to become a "patient."

The RBA maintained its overnight interest rate at 0.1% and maintained its commitment to purchase government bonds at an interest rate of A $ 4 billion ($ 3 billion) until at least mid-February 2022.

The delicate balance of loosening control of the yield curve, while promising to maintain low interest rates for some time, illustrates the central bank's dilemma after the Covid-19 crisis.

Economy resumes after pandemic faces serious problems Global supply chain disruption, Putting upward pressure on prices and major markets, expecting an early rise in interest rates.

According to the report, the rate of increase in consumer prices in Australia has remained at 3% year-on-year. Numbers announced last weekDriven by fuel and housing costs.

Inflation rates are volatile in the short term, but central banks are reluctant to raise interest rates as the economy has not fully recovered from the pandemic. They are afraid of the resurgence of deflationary pressure, which defined the 2010s and brought zero interest rates in many advanced economies.

The RBA adopted Yield Curve Control, the first policy adopted by the Bank of Japan in March 2020. We set overnight interest rates and 3-year yields at 0.25% and reduced them to 0.1% in November 2020.

Under the control of the yield curve, the central bank promises to buy as many bonds as it needs to keep the yield below a certain level. This allows you to manage long-term interest rates and add additional monetary stimulus when overnight interest rates are already zero.

Last week, the RBA raised its three-year yield to the cap. It traded at 0.975% after the monetary policy decision, suggesting that overnight interest rates will rise several times by 2024.

This shift made the RBA the first central bank to withdraw from its yield curve control policy, setting an important precedent for the Bank of Japan, although it is unlikely that the Japanese central bank would cut off the policy for several years.

Additional Report by Hudson Rocket in Hong Kong

Central Bank of Australia tightens monetary policy to deal with rising prices

Source link Central Bank of Australia tightens monetary policy to deal with rising prices