MNI BRIEF: RBA Took 'Considerable' Hit to Reputation - Review

The Reserve Bank of Australia admitted it suffered "considerable" reputational damage by abandoning its 2024 yield curve control target as many people viewed it as a broken promise, according to a review of its forward guidance released Tuesday, that concluded communications by the central bank could have been conducted more clearly.

The frank self-assessment came as the RBA acknowledged that, in retrospect, greater emphasis on upside risks might have lead to an earlier decision to modify the time-based aspect of forward guidance that saw it target 0.1% for the 3-year, April 2024 bond. This was abandoned in November 2021 as global yields rose on higher-than-expected inflation.

"The fact that many people interpreted the forward guidance as ‘a promise’ that there would be no rate raises until 2024 led to considerable reputational damage to the Bank. When the cash rate was increased in May 2022, many people saw the Bank as having broken ‘its promise’," the review said. The RBA said a less specific timeframe, or one covering a shorter horizon, would have been preferable.

The review comes with the RBA a subject of a Treasury-led review of its policy formulation, implementation and communication. A review of its AUD281 billion //bond portfolio// released in September warned of losses as high as AUD58 billion. (See MNI BRIEF: RBA Loss From Bond Buying Could Hit AUD58Bln)