HomePoliticsAustralia's central bank stops buying bonds on QE change signal

Australia’s central bank stops buying bonds on QE change signal


The Reserve Bank of Australia refused to defend its bond yield target, a mainstay of its quantitative easing program, unleashing what one trader described as “carnage” in the country’s sovereign bond market.

Markets pushed the Australian government’s April 2024 bond yield to more than 0.7 percent on Friday, beating the central bank’s target level of around 0.1 percent after the bank chose not to intervene. Yields move inversely to bond prices.

Australia is the second country this week to abruptly halt its bond-buying program, after the Bank of Canada surprised investors on Wednesday by signaling a shift toward tighter monetary policy.

The RBA’s decision comes amid growing anticipation that it could raise interest rates next year.

The Reserve Bank of New Zealand raised rates for the first time in seven years this month, following moves by Norway and South Korea.

The RBA’s decision not to intervene sent shockwaves through the country’s sovereign bond market, with yields on its 10-year bonds rising 0.11 percentage points to 1.955 percent, marking their highest level in two and a half years.

“The RBA just doesn’t come forward to defend its yield target, bonds are slaughtered,” said a fixed income trader, who also described the latest moves for Australian, New Zealand and Canadian bond yields as “a carnage. massive “.

“Quantitative easing is taking off and is very complicated,” he added. “We’ll see how long the Fed and the ECB can hold out.”

Analysts had predicted that the RBA could officially drop its performance targeting program next Tuesday, when the central bank’s board is scheduled to meet.

David Plank, director of Australian Economics at ANZ, said the central bank’s decision not to intervene was “implicit confirmation” that it would abandon the program.

“They have obviously decided not to bother to make the effort today, given that on Tuesday they are probably going to announce the end anyway,” he said, adding that a stronger-than-expected reading on consumer inflation was released on Thursday. he had helped force the RBA’s hand.

The consumer price index reading released this week showed that core inflation, the central bank’s preferred measure, broke its 2-3 percent target range for the first time since 2015.

Economists at Bank of America Securities forecast this week that the RBA would begin raising rates in the fourth quarter of 2022 “in light of today’s data pointing to a faster and more sustained rise in inflation.” He had previously said that the bank would hold rates until the end of 2023.



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