Did RBA Action Show They Lost Control in Markets? | Italian Bond Sell-Off an Issue for ECB

Market Movers
4 min readNov 2, 2021

We’re on a heavy schedule this week with major market moving releases. While most people are focusing on the Bank of England and the US Federal Reserve, the Reserve Bank of Australia wasn’t one to ignore.

In fact, as Jim Reid of Deutsche Bank wrote earlier in the week: “I’m going to open the market section this morning with a line I don’t think I’ve written in 27 years of market commentary and probably won’t again. And it’s not about England thrashing Australia at cricket on Saturday. Yes, the most important event of the week could be the RBA meeting tomorrow.”

Here are the key points of what they ended up announcing:

  1. Maintaining the cash rate target at 10 basis points.
  2. Continuing their government securities purchases at $4 billion a week until at least mid February next year.
  3. Stopping the target of 10 basis points for the April 2024 Australian Government Bond.

This means the RBA is getting rid of its policy of yield curve control, meaning it’s doing what we’re expecting most major central banks to do and tightening its policy. On that topic, their statement said:

“The decision to discontinue the yield target reflects the improvement in the economy and the earlier-than-expected progress towards the inflation target. Given that other market interest rates have moved in response to the increased likelihood of higher inflation and lower unemployment, the effectiveness of the yield target in holding down the general structure of interest rates in Australia has diminished.”

It’s fair to say that not everyone is buying the narrative and some critics just think this is a case of the RBA losing control. Last week Australia’s three-year yields shot up by 8 times the target rate and the RBA didn’t take action.

While the bond market has seen a lot of volatility, the Aussie dollar has been fairly tame. The market reacted to the announcement with a bearish move, but it’s still staying relatively range bound.

That’s really the story for many currencies this week; trading is stuck in ranges. Personally, I see that as a good thing, since ideally, you’d only want…



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