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Free AccessMNI BRIEF: RBA Admits "Reputational Damage" From Yield Target
The Reserve Bank of Australia has conceded that the “disorderly” exit from its yield target program in November 2021 “caused some reputational damage to the bank.”
The RBA on Tuesday released an internal review of the success of its yield target program, which saw the central bank buy three year government bonds with the aim of keeping the yield at 0.10% to match the record low level in official interest rates. The RBA abandoned the yield target after yields on the bonds surged to 0.8% under sustained pressure from the market, (See: MNI: RBA Reviews Set To Kick Off On Policy, Targets).
The review found the programme was successful “for the bulk of the period,” but at the end it was associated with “bond market volatility and some dislocation in the market.”
“For much of the time the target was in operation, it successfully reinforced the bank’s forward guidance about the cash rate, but its effectiveness as a monetary policy tool waned as market participants reassessed their views of the outlook for the cash rate,” the review said. Any future use of a yield target would “require close attention to the lessons learned from this experience.”
The review said that while a wider bond purchase programme offering more flexibility than a yield target, it presented other risks to the central bank and the “greater possibility of market dysfunction.”
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