Interbank Market News Scan: Reserve Bank of Australia expects upward path on interest rates …

9 August 2021, 9:25 pm EST

AUD/USD

No reports today hinting at any changes in the Reserve Bank of Australia’s decision to reduce weekly bond purchases from AUD5 billion to AUD4 billion.  This contraction in economic stimulus comes as Sydney, Australia’s largest city, and Melbourne have entered lockdowns. The delta variant outbreak is viewed by some as so serious that calls for steel fabricated rings be placed around the city of Melbourne, for example.

The RBA notes that Australia’s move toward economic recovery has been stymied by the delta outbreak.  In its August 2021 Statement on Monetary Policy, the RBA found that, “The near-term outlook is highly uncertain and dependent on health outcomes. Further large outbreaks are possible, but the need for extended lockdowns should diminish as vaccination coverage increases.  The longer the lockdowns continue, however, the more likely it is that jobs are lost.”

The RBA expects recent lockdowns to be less onerous on the economy when compared to lockdowns in the first half of last year.  This is because businesses have adjusted their models to compensate for changes in consumption.

Consumer price index (CPI) inflation was measured at 3.8% last June due in part to reversals in declining prices as the economy started an upward climb.  When volatile items such as petrol, fruits and vegetables are removed from the estimate, inflation was around 1.75%.

The RBA reported strengthening exports with increases in prices for its commodities.  The RBA noted that the AUD continues to depreciate in spite of high prices.  The RBA describes yields and spreads on corporate bonds and interest rates as low.

The RBA expects interest rates to continue on an upward path for advanced economies given bottlenecks in supply chains and rapid re-openings.  Interestingly, the RBA did not specify that such increases would happen in the Australian economy.

On the other hand, Australia may see increases in interest rates as it tapers its bond purchases.

As of 5 August, the yield on the Australian government 2-year bond was .03%.  Bloomberg reports two-year yields on U.S. Treasuries at 0.21%. As of 9:21 pm EST, Reuters reports the AUD/USD exchange rate at 0.7330 USD.

Alton Drew

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Interbank market news scan: Central banks, foreign exchange …

Follow the links …

Sudan’s central bank steeply devalued the country’s currency, as part of a broader effort to win debt relief and revive the struggling economy. Sudan Central Bank Devalues the Currency to Revive Economy (msn.com)

The Central Bank of Morocco is now studying the concept of central bank digital currencies (CBDCs) and has set up a committee to extensively explore its pros and cons, according to reports on February 20, 2021. Morocco’s Central Bank Looks to Launch Own Digital Currency | BTCMANAGER

Assistant Governor Christopher Kent’s speech on FX markets around the turn of the year. FX Markets Around the Turn of the Year | Speeches | RBA

Reserve Bank of Australia’s cash rate target is 0.1%; 3-year Australian Government Bond Yield target, 0.1%; inflation rate, 0.9%. Reserve Bank of Australia (rba.gov.au)

People’s Bank of China announced open market operation of RMB10 billion, seven days maturity, at 2.20%. Open Market Operations No.33 [2021] (pbc.gov.cn)

Currency pairsExchange Rate as of 4:15 pm 16 February 2021(1) As of 6:53 pm EST Exchange Rate as of 21 February 2021(2)(3)
AUD/USD0.7762 0.7877
USD/CAD1.2694 1.2609
USD/CNY6.4567 6.4555
EUR/USD1.2126 1.2116
USD/INR72.6000 72.5600
GBP/USD1.3855 1.4012
USD/JPY104.9400 105.3700
USD/MXN19.9300 20.4320
USD/DKK6.1325 6.1339
USD/NOK8.4558 8.4627
BTC/USD  52843.4000
ETH/USD  1,859.5100
Sources: Federal Reserve(1); Reuters-FX rates(2); OANDA-Crypto rates(3)

Interbank market news scan: Central banks, foreign exchange; cryptocurrency …

In the news …

According to preliminary statistics, outstanding aggregate financing to the real economy (AFRE) reached RMB289.74 trillion at end-January, increasing 13 percent year on year. Report on Aggregate Financing to the Real Economy (Stock) (January 2021) (pbc.gov.cn)

According to preliminary statistics, the aggregate financing to the real economy (AFRE) (flow) was RMB5.17 trillion in January 2021, up RMB120.7 billion year on year (y-o-y). Report on Aggregate Financing to the Real Economy (Flow) (January 2021) (pbc.gov.cn)

Consolidated financial statement of the Euro System. Consolidated financial statement of the Eurosystem (europa.eu)

The European Central Bank (ECB) announces today that it will begin publishing aggregate results of its Survey of Monetary Analysts (SMA) in June 2021. The survey, an ECB staff-level exercise, collects information on market participants’ expectations about the future evolution of key monetary policy parameters, financial market variables and the economy. The survey runs eight times a year and is aligned with the six-week schedule of the monetary policy meetings of the Governing Council. ECB to publish results of the Survey of Monetary Analysts (europa.eu)

The Bank and FCA held a consultation with FMIs and reviewed their co-operation regarding market infrastructure – seeking in particular feedback on how the authorities had co-operated during the Covid market events of Spring 2020. The authorities concluded that the MoU’s arrangements for co-operation remain effective, with appropriate co-ordination and no material duplication. Industry respondents acknowledged the efforts made on co-operation and the Bank and FCA remain committed to effective co-operation. Update on Bank of England and Financial Conduct Authority Memorandum of Understanding on the supervision of market infrastructure and payment systems | Bank of England

Reserve Bank of Australia releases official reserve assets picture. Official Reserve Assets – January 2021 | RBA

10 February 2021, 4:08 am EST