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Markets Sensitive To Omicron Spread

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Ringgit Slips In Holiday-Thinned Trade

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Another, Modest, Omicron Bid Kicks In

CHINA RATES

China Repo Rates Rise Friday

-Updated with comments from Q&A on AUD, future risks
-Material change in bank funding cost affect financial conditions
By Sophia Rodrigues
     SYDNEY (MNI) - A material change in the cost of funds for banks will
contribute to changes in financial conditions and have implications for the
wider economy, Reserve Bank of Australia Assistant Gov. Christopher Kent said
Wednesday.
     At present there is no such pressure because marginal rates of funding are
a little below the average outstanding rates -- which have declined close to 10
basis points since late last year, Kent said at a Bloomberg event at Sydney.
     Despite recent increases in long-term government bond yields across a range
of advanced economies yields on longer-term government debt are still quite low,
Kent said. Monetary policy remains very accommodative across advanced economies
and inflation is low. 
     Given the decline in bank-bond spreads since mid-2016 the same is true of
the costs of bank funding in longer-term wholesale debt markets, he said.
Funding costs in short-term debt markets are low, too.
     The recent appreciation in the Australian dollar is mainly a story of
depreciation in the U.S. dollar, Kent said at a Q&A session. This is mainly a
result of some unwinding of the "Trump trade" and because of a downward surprise
to recent inflation data.
     Financial markets may be underappreciating the risks of a faster rise in
inflation -- a possibility given the labor market is tightening, Kent said of
future sources of risks to financial markets. He also mentioned a tightening
labor market in Japan.
     Other risks relate to an increase of debt in China -- which could have
implications for both the Australia and international economies, Kent said.
     In the Statement on Monetary Policy published Friday the RBA again cited
China as a source of uncertainty to its forecasts. 
     "There continues to be uncertainty about how the authorities will negotiate
the difficult trade-off between growth and the buildup of leverage in the
Chinese economy. The adoption of a stricter regulatory approach to managing
risks in the 'shadow banking' sector over the past year, together with the
recent high-level directive to improve coordination among financial supervisors,
could lead to tighter-than-expected financial conditions and result in growth
being weaker than expected," the RBA said.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email: sophia.rodrigues@marketnews.com
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