The Reserve Bank of Australia has decided to continue anti-inflationary measures by cancelling billions of dollars of its bond holdings.
RBA Assistant Governor Christopher Kent reiterated that the bank has decided to not spend the proceeds from the bonds purchased from banks beginning in 2020. This means that the RBA is now constricting the money supply in the economy. “We have now entered the phase known as ‘quantitative tightening’, or QT,” Kent said.
The RBA will effectively ‘‘cancel’’ the bonds that they have bought from banks, which bought them from the government, as they mature. The decision will have the effect of raising interest rates and increasing the Australian dollar exchange rate, says Kent.
The reversal of the bond buying of 2020, which was designed to get the economy moving when “the unemployment rate was close to 7 per cent and expected to rise even higher and inflation was low, at only 1¼ per cent in underlying terms, and was widely anticipated to rise only gradually.”
Callum Foote was a reporter for Michael West Media for four years.