Statement on Monetary Policy - FEBRUARY 2022 - Reserve Bank of Australia
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Statement on
Monetary
Policy
F E B R UA RY 2 0 2 2
Statement on Monetary Policy
FEBRUARY 2022
Contents
Overview 1
1. The International Environment 5
2. Domestic Economic Conditions 21
3. Domestic Financial Conditions 29
4. Inlation 45
5. Economic Outlook 55The material in this Statement on Monetary Policy was inalised on 3 February 2022. The next Statement is due for release on 6 May 2022. The Statement is published quarterly in February, May, August and November each year. All the Statements are available at www.rba.gov.au when released. Expected release dates are advised ahead of time on the website. For copyright and disclaimer notices relating to data in the Statement, see the Bank’s website. The graphs in this publication were generated using Mathematica. Statement on Monetary Policy enquiries: Secretary’s Department Tel: +61 2 9551 8111 Email: rbainfo@rba.gov.au ISSN 1448–5133 (Print) ISSN 1448–5141 (Online) © Reserve Bank of Australia 2022 Apart from any use as permitted under the Copyright Act 1968, and the permissions explicitly granted below, all other rights are reserved in all materials contained in this publication. All materials contained in this publication, with the exception of any Excluded Material as deined on the RBA website, are provided under a Creative Commons Attribution 4.0 International License. The materials covered by this licence may be used, reproduced, published, communicated to the public and adapted provided that the RBA is properly attributed in the following manner: Source: Reserve Bank of Australia 2022 OR Source: RBA 2022 For the full copyright and disclaimer provisions which apply to this publication, including those provisions which relate to Excluded Material, see the RBA website.
Overview
The Australian economy has bounced back previously. Although this variant is much more
strongly from the lockdowns associated with the transmissible, rates of severe disease are
outbreak of the Delta variant of COVID-19 in the significantly lower than for earlier strains,
second half of 2021. GDP is expected to have assisted by high vaccination rates in many
grown by 5 per cent over the year despite these countries. As a result, restrictions on activity have
lockdowns. In light of this strong recovery and been much less than in earlier outbreaks.
signs that the effect of the Omicron outbreak on Mobility and other indicators of economic
spending has been relatively small, the outlook activity have declined in response to the limited
for the Australian economy has been upgraded restrictions that have been put in place, as well
relative to the forecasts presented in the as because people have been reducing their
November Statement on Monetary Policy. GDP is movements either to avoid infection or to isolate
expected to grow by around 4¼ per cent over because they are infected or are close contacts.
2022 and 2 per cent over 2023. Inflation pressures have been elevated in many
The labour market has likewise recovered advanced and emerging economies, though
quickly. The unemployment rate declined to less so in parts of Asia. Recent inflation
4.2 per cent in December and there has been a outcomes in many advanced economies have
welcome reduction in underemployment to its been higher and more persistent than expected,
lowest rate in 13 years. Labour force and indications are that inflationary pressures
participation also recovered to high levels. While are becoming more broadly based. Supply
the Omicron outbreak is expected to have disruptions have added significantly to a wide
reduced hours worked significantly in January range of goods and commodity prices. Strong
and into February as workers recover from illness global demand for goods, driven by changing
or are required to self-isolate, employment is consumption patterns related to the pandemic
likely to have been little affected. With job and underpinned by policy support, is also
vacancies and other indicators of labour contributing to price pressures. The current
demand remaining strong, further improvement Omicron outbreak has added to the existing
in the labour market is anticipated over the supply disruptions that have contributed to
course of this year and into 2023. The central rising price pressures globally. Central banks in
forecast is for the unemployment rate to fall advanced economies have revised up their near-
below 4 per cent later this year and to remain so term forecasts for inflation, but generally still
over the rest of the forecast period. expect inflation to decline towards their targets
Many countries, including Australia, are over the coming year or so as the supply
contending with large outbreaks of the Omicron disruptions are resolved.
variant of the COVID-19 virus, but these Australia has been affected by these global
outbreaks are expected to have much smaller inflationary pressures, but to a lesser extent than
effects on activity than those experienced some other advanced economies. Headline and
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 2 1underlying inflation were both higher in the industries are already reporting strong wages
December quarter than the Bank had expected. growth for jobs requiring skills that are in high
The Consumer Price Index increased by demand. However, the pick-up in aggregate
1.3 per cent in the quarter; fuel, new dwelling wages growth is likely to be only gradual,
construction costs and consumer durable prices reflecting slow growth in public sector wages
accounted for about two-thirds of that increase. and the inertia resulting from multi-year
The increases in the prices of consumer durables enterprise agreements. Broader measures of
are consistent with global supply-chain earnings growth that include bonuses and other
pressures persisting for longer than expected. non-base wage payments are likely to increase
There is also some evidence of inflation at a faster pace than base wages.
pressures recently broadening beyond goods Consumer spending recovered quickly following
prices into services prices. Trimmed mean the end of last year’s lockdowns and the
inflation was 1 per cent in the quarter and fundamental drivers for consumption remain
2.6 per cent over the year, and a higher share of positive. Spending is being supported by a
items recorded inflation above 2½ per cent than robust labour market and household finances.
has been the case in recent years. Household wealth has increased strongly during
The outlook for inflation has been revised higher. the pandemic, with substantial growth in
Upstream cost pressures in housing housing wealth and some contribution from the
construction and durable goods are expected to savings accumulated while spending
push underlying inflation higher in the near opportunities were constrained by lockdowns.
term, but moderate over time. Underlying As the labour market continues to improve,
inflation is forecast to peak around 3¼ per cent household incomes will expand solidly. The
in the next few quarters, before returning to growth in incomes and wealth will support both
around 2¾ per cent as some of the shorter-term consumption and dwelling investment over the
cost pressures abate. Given the tighter labour period ahead.
market and strong demand conditions Dwelling investment is expected to remain at a
anticipated over coming years, inflation is high level. This outlook is underpinned by the
expected to remain in the upper half of the substantial pipeline of work prompted by the
Bank’s inflation target range of 2 to 3 per cent. HomeBuilder program and other fiscal
There are, however, considerable uncertainties incentives, as well as the strength in household
surrounding this outlook, not least because the incomes and wealth. In addition, household
effect of very low unemployment rates on preferences have shifted towards demanding
wages and other prices is uncertain, given there more space in homes following the experience
is little recent historical experience to draw of lockdowns and other consequences of the
upon. pandemic. This preference shift has contributed
Growth in wages has increased a little, but so far to the strong conditions in established housing
only to the slow rates seen prior to the markets. Nationwide, housing prices increased
pandemic. Most employers in the Bank’s liaison by 22 per cent over 2021. In recent months,
program are not anticipating wages growth to however, the pace of housing price growth has
move beyond the 2 to 3 per cent range this year. eased in the largest cities. Growth in advertised
Given the strong current and expected labour rents has also eased in some capital cities, but
market outcomes, the medium-term outlook for remains strong elsewhere.
private sector wages growth is stronger than at Similar to the housing construction sector, a
the time of the November Statement. Some significant pipeline of construction work
2 R E S E R V E B A N K O F AU S T R A L I Aunderpins the outlook for business and public related contractions much more quickly than in
investment. However, supply shortages are a typical downturn. Unemployment rates are
evident in the construction sector, suggesting now close to or a little below pre-pandemic
that capacity constraints could slow actual levels, which in many cases were already low
investment relative to stated plans. Capacity relative to the experience of previous decades.
constraints are also being reported in some GDP in advanced economies is expected to
exporting sectors and other parts of the labour regain its pre-pandemic path during 2022; in
market. Firms in the construction, professional China, this has already occurred. By contrast, in
services, agriculture and hospitality sectors are some other emerging economies, a persistent
reporting difficulties in finding labour, especially shortfall in output is likely to remain.
for selected skills in high demand. Some of these The most significant downside risks to the global
difficulties could ease now that the international and domestic economies continue to be health-
border is reopening to some skilled migrants. In related. In the downside scenario contemplated
the meantime, though, firms are reporting in the ‘Economic Outlook’ chapter, the
higher rates of staff leaving for higher pay than Australian unemployment rate would increase
in recent years. back to around pre-pandemic levels. Supply
Strong construction activity and demand for disruptions would partially offset the ensuing
housing more generally in the low interest rate downward pressures on prices, with underlying
environment are reflected in the strong demand inflation remaining in the lower part of the
for finance. Accordingly, credit growth picked up target range. On the other hand, if health
strongly over 2021. Growth in housing credit outcomes turn out to be better than expected,
moved higher over recent months and new households’ confidence and willingness to
financing commitments rebounded from the spend out of accumulated savings could be
effects of lockdowns in some states. Business higher. In that scenario, the unemployment rate
credit growth has increased noticeably, driven could fall to around 3 per cent by the end of the
by lending to large firms. With interest rates at forecast period and inflation would be
historically low levels, it is important that lending noticeably higher.
standards are maintained and that borrowers The global outlook is subject to a range of risks
have adequate buffers. outside the health sphere. If the upswing in
Financial conditions domestically and overseas global inflation turns out to be larger or more
generally remain accommodative and, in persistent than currently expected, it could
Australia, banks’ funding costs are at historic trigger an earlier and larger tightening in global
lows. Government bond yields in most monetary policy. This could in turn prompt a
advanced economies have risen noticeably over further sharp rise in global bond yields and
the past couple of months, as market financial market risk premiums, which could be
participants increasingly expect central banks to disruptive, particularly for some emerging
begin withdrawing monetary policy stimulus in market economies. The Chinese economy is
the near future. Many central banks in advanced subject to some specific risks related to the
economies are expected to raise policy rates in various policy trade-offs that the authorities face.
2022; a few have already done so. Likewise, most There are also risks to the Chinese economy
central banks have ceased their pandemic- should a widespread outbreak of COVID-19
related asset purchases or will do so soon. occur and require large-scale suppression
Output and labour markets in advanced measures there. Geopolitical risks have also
economies have recovered from pandemic- come to the fore in recent weeks.
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 2 3At its recent meetings, the Reserve Bank Board Ceasing purchases under the bond purchase
considered the Australian economy’s faster- program does not imply a near-term increase in
than-expected recovery from the interest rates, nor does it represent a tightening
2021 lockdowns, particularly in the labour of monetary policy. The international evidence is
market. It also observed that inflation has picked that it is the stock of bonds purchased, not the
up faster than anticipated and is now expected flow of purchases, that provides the economic
to remain above the middle of the 2 to support. As the Board has stated previously, it
3 per cent target range for the next few years. If will not increase the cash rate until actual
realised, the staff forecasts imply that the Bank’s inflation is sustainably within the 2 to 3 per cent
policy goals would be achieved sooner than target range. Progress towards the Bank’s goals
previously envisaged. has been material, but significant uncertainties
The bond purchase program, together with the surround the inflation outlook. There have been
low level of interest rates and the Term Funding large shifts in both supply and demand in
Facility, have provided important support in response to the pandemic, and it is unclear how
moving the economy closer to reaching the these patterns will evolve, or how quickly. As
Bank’s policy goals. At its February meeting, the some of the supply-side issues are resolved, it is
Board decided to cease further purchases under possible that some of the recent increases in
the bond purchase program after 10 February prices will be reversed, or that the rate of
on the basis of the three criteria that had guided increase will moderate. It is also possible that
it from the outset: the actions of other central consumption patterns rebalance over time and
banks; the functioning of Australia’s bond demand for goods slows, both in Australia and
market; and actual and expected progress globally. There are also uncertainties about how
towards the Bank’s policy goals of full employ- labour supply might evolve, related to the
ment and inflation consistent with the target. By reopening of the borders and people’s
the time of the February meeting, most other availability to work given ongoing pandemic-
central banks had concluded their programs, or related illness and isolation requirements. This
were expected to do so shortly. While the will have a bearing on wages growth, which in
Australian bond market has been functioning aggregate has only just returned to the low rates
reasonably well, with support from the Bank’s prevailing before the pandemic.
stock-lending activities, some pressure points The Board judged that it is too early to conclude
have emerged. Most importantly, there has been that inflation is sustainably in the target range.
significant progress towards the Bank’s goals, Underlying inflation has just reached the
with the unemployment rate at 4.2 per cent and midpoint of the target range for the first time in
underlying inflation at 2.6 per cent. over seven years. Consequently, the Board is
Given the next maturity date for an Australian prepared to be patient as it monitors how the
Government bond the Bank holds is not until various factors affecting inflation in Australia
July, the Board plans to consider the issue of evolve. It is committed to achieving the inflation
whether or not to reinvest the proceeds of target, which remains at the centre of the
maturing bonds at the May meeting, with the monetary policy framework. It will do what is
benefit of further information on actual and necessary to maintain low and stable inflation,
expected progress towards its goals. which is important not only in its own right but
also as a precondition for a sustained period of
full employment.
4 R E S E R V E B A N K O F AU S T R A L I A1. The International Environment
Global economic growth picked up in the some sources of upstream price pressures, such
second half of 2021, supported by the as shipping costs and semiconductor prices,
widespread lifting of activity restrictions appear to have peaked. While wages growth has
following increases in vaccination coverage. picked up sharply in only a few countries,
While there have been and continue to be inflation has generally been higher, more
challenges arising from the rapid spread of the persistent and more broad-based than central
Omicron variant of COVID-19, the impact on banks previously expected.
economic activity is less than in earlier Central banks in advanced economies generally
outbreaks. The recovery is most progressed in expect inflation to moderate in 2022; however, a
advanced economies, underpinned by strong number forecast inflation to exceed their targets
household balance sheets, a rapid recovery in for a time and for labour markets to continue to
labour markets, and supportive fiscal and tighten. Given this, central banks in most
monetary policies. Economies in the Asian advanced economies have ceased or reduced
region have also resumed growing in recent the pace of asset purchases. Some have also
months, following the disruptions associated increased their policy rates and market pricing
with the outbreak of the Delta variant in the suggests that a number of others are expected
middle of last year. Economic growth in China to do so soon. Yields on government bonds
picked up in the December quarter, though have increased in advanced economies; financial
headwinds remain. The Chinese authorities have conditions have tightened but overall remain
eased monetary policy, and domestic economic accommodative. In emerging market
policy settings are expected to be less of a drag economies, a number of central banks outside
in 2022 as greater emphasis is placed on Asia have continued to tighten policy in
supporting growth. However, broader and more response to inflation that remains persistently
frequent lockdowns in response to COVID-19 above target.
outbreaks could disrupt growth, and longer-
term policy challenges in China remain. More
Economic activity has been relatively
generally, GDP in Australia’s major trading
resilient to the Omicron outbreak …
partners is forecast to grow strongly in the
The emergence of the Omicron variant in
coming year, before slowing to slightly below
November 2021 has led to declines in
average rates in 2023.
population mobility in many advanced
Global supply chains remain under pressure, economies over recent months (Graph 1.1).
particularly as the spread of COVID-19 disrupts However, these declines have generally been
labour supply and transportation networks. smaller than during previous outbreaks,
Inventories remain low across a number of reflecting the lighter role for state-mandated
commodity and non-commodity sectors, lockdowns during this current wave. This can be
including in the retail supply chain. Even so, traced to Omicron infections generally resulting
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 2 5in lower rates of hospitalisations and deaths, activity was subdued by historical standards
compared with earlier strains of COVID-19. throughout most of 2021 (as discussed below),
Surveys of business conditions and other timely but GDP in China recovered to pre-pandemic
indicators signal an ongoing but slower trends more quickly than other large economies.
expansion in economic activity in most In a few large emerging market economies
advanced economies around the turn of the outside Asia (such as South Africa and Russia),
year (Graph 1.2). Mobility in India declined in GDP contracted or grew only modestly in the
January, though by much less than it did during latter part of 2021. Output in most advanced
its mid-2021 Delta outbreak. Economic activity economies is now back to or above its pre-
in much of east Asia has continued to recover pandemic level, though trends in activity in
from that region’s Delta outbreaks, with Omicron emerging markets have been more disparate.
infections only recently beginning to increase. In
China, where authorities have continued to
Graph 1.2
impose intermittent localised lockdowns in an
COVID-19 – New Cases and Deaths
effort to suppress the virus, overall mobility has Smoothed, previous peak = 100
index North America and Europe* index
been resilient in recent months.
600 600
Global economic activity had generally been Cases
300 300
robust prior to recent Omicron outbreaks. GDP
Deaths
in North America and Europe increased strongly index index
Rest of world*
over the second half of 2021 following the
200 200
easing of activity restrictions around midyear
100 100
(Graph 1.3). Likewise, economic growth
rebounded in Japan, India and most of east Asia 0 0
M J S D M J S D M
in the December quarter, after contracting or 2020 2021 2022
* Previous peak was in January 2021 for North America and Europe;
slowing sharply in the June and September previous peak was in May 2021 for rest of world.
Sources: JHU CSSE; Our World in Data; RBA
quarters due to the effects of the Delta
outbreaks in those areas. Chinese economic
Graph 1.3
GDP
Graph 1.1 Relative to December quarter 2019
% %
Population Mobility – Retail and Recreation Advanced economies Emerging markets
Deviation from January 2020, smoothed
% %
Other east Asia* 6 7
United States
China**
0 0
0 0
-25 -25
Australia
India -6 -7
-50 -50
-75 -75 -12 -14
Taiwan
Norway
Australia
New Zealand
Euro area
Canada
Japan
Turkey
China
Russia
United States
South Korea
Hong Kong
United Kingdom
Vietnam
India
Indonesia
Brazil
Malaysia
Philippines
Thailand
South Africa
Western Europe*
-100 -100
M J S D M J S D M M J S D M J S D M
2020 2021 2022 2020 2021 2022
* GDP-weighted averages; other east Asia includes Australia’s main east
Asian trading partners and Western Europe includes the euro area and
the United Kingdom. June quarter 2021 December quarter 2021*
** Public transport (metro) passenger volumes in eight major Chinese cities. * Forecasts used where December quarter GDP has not yet been
Sources: Google LLC (2021), ‘Google COVID-19 Community Mobility Reports’, reported.
viewed 28 January 2022. Available at Sources: ABS; Bloomberg; CEIC Data; Consensus Economics; RBA;
; RBA; WIND Information Refinitiv
6 R E S E R V E B A N K O F AU S T R A L I A… and is expected to grow strongly given healthier household balance sheets,
in 2022 expansionary financial conditions and pent-
GDP in Australia’s major trading partners is up demand.
projected to exceed its historical average in 2022 • It is also possible that the health impacts of
(with year-average growth of 4½ per cent), COVID-19 in the period ahead are more
before easing to a slightly-below-average rate in benign than currently assumed in the
2023 (Graph 1.4). The overall GDP forecast for forecasts, further supporting growth in
Australia’s major trading partners remains private demand.
broadly the same as in the November Statement,
On the other hand, there are a number of
with limited near-term impact from the spread
downside risks to the global economic outlook,
of Omicron.
including:
In most advanced economies, GDP is forecast to
• Health-related developments could be
return to its pre-pandemic trend path by mid-to-
worse than assumed. Though Omicron
late 2022. The Chinese economy is also forecast
infections tend to be less severe than earlier
to continue expanding around its pre-pandemic
strains, very high case numbers could affect
trend during 2022, though a gradual slowing in
mobility substantially as more people
potential economic growth in China is expected
become ill, have to self-isolate or choose to
over coming years. By contrast, the strong
restrict their activities to avoid infection.
growth forecast for many emerging market
Tighter restrictions on activity could also be
economies over coming years is not expected to
reintroduced. If the current Omicron wave
be sufficient to make up for the significant loss
persists, or a more dangerous strain of
of output during the pandemic. This is especially
COVID-19 emerges, supply chains, labour
evident for Asian emerging markets, in part
supply and economic growth would all be
because of their reliance on international
disrupted.
tourism.
• The upswing in global inflation could be
The global economic outlook is subject to a
larger and/or more persistent than currently
range of risks that are broadly balanced. On the
forecast. If so, it would be likely to trigger an
upside:
earlier and more significant tightening in
• Household consumption could be stronger global monetary policy than forecast. A
than anticipated over the next few years, sharp rise in policy rates, particularly in the
United States, could in turn prompt a sharp
rise in global bond yields and a broader
Graph 1.4
tightening in global financial conditions via a
Australia’s Major Trading Partner GDP
March quarter 2019 = 100 range of channels, including higher financial
index Forecasts index
market risk premiums and an increase in
115 115
capital outflows from emerging market
110 110 economies. Such an outcome could occur if
Feb 2020 Current
105
SMP
105
demand remains strong and the productive
capacity of the global economy is lower than
100 100
assumed as a result of various changes
95 95 induced by the pandemic, particularly to
labour supply and product supply chains.
90 90
2019 2020 2021 2022 2023
Sources: ABS; CEIC Data; Consensus Economics; RBA; Refinitiv
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 2 7• Authorities in China may find it challenging were constrained. Outside the United States,
to balance various policy trade-offs. There is saving ratios are still generally elevated
the challenge of lifting the pace of economic (Graph 1.6). As a result, consumption could grow
growth through less-restrictive policy faster than income for a period while saving
settings while continuing to address ratios return to historically normal levels; indeed,
concerns about excessive leverage, households might dip into the substantial extra
particularly in the property sector. There are savings they have accumulated over the
also risks to the economy if authorities pandemic, leading to even stronger consump-
struggle to control outbreaks of COVID-19, tion growth. Over the past year, strong growth in
given China’s current approach of seeking to labour income in advanced economies has
suppress the virus through localised offset the effect of the unwinding of pandemic-
lockdowns. related fiscal support to households. In addition,
household wealth has risen strongly. Household
Households are driving the recovery income in Japan will be boosted further by the
Consumer spending maintained a strong pace recently announced economic support package,
of growth through the second half of 2021. which provides cash transfers to low-income
Aggregate household consumption in advanced households.
economies surpassed its pre-pandemic level in Business investment has increased only
the September quarter of 2021, after falling by modestly in recent quarters, and remains well
more than 10 per cent in the first half of 2020 below pre-pandemic levels in a number of
(Graph 1.5). The recovery in consumption has advanced economies. However, investment
been strongest in the United States. Goods growth has been very strong in high-income
consumption has remained very strong in Asian economies, as companies have expanded
advanced economies, even as services the capacity of semiconductor and other
consumption has picked up. consumer goods manufacturing. Global
Household finances are supporting continued business investment is likely to increase more
strong consumption growth in advanced robustly in 2022, supported by expectations for
economies. Many households accumulated strong global growth and because the higher
significant savings during the pandemic as prices induced by supply constraints will
incomes rose and consumption opportunities
Graph 1.6
Graph 1.5 Household Financial Indicators
ppt index
Household saving ratios* Housing price indices**
Household Consumption
G7 economies, 2019 = 100 New Zealand
index index 20 140
110 110
Goods Canada
105 105 10 120
Sweden
100 100 United
States
Total 0 100
95 95 United
Other advanced
Kingdom
economies***
90 90
Services -10 80
2019 2020 2021 2019 2020 2021
85 85
* Deviation from 2015–2019 average ratio.
** December 2019 = 100.
80 80 *** GDP-weighted average of G7 economies excluding United States
2015 2016 2017 2018 2019 2020 2021 and Japan.
Sources: RBA; Refinitiv Sources: national sources; RBA; Refinitiv
8 R E S E R V E B A N K O F AU S T R A L I Aencourage an expansion in capacity to address to reducing leverage in the sector (sustaining
those constraints. Fiscal policy is also shifting pressure on developers’ finances) and are not
towards supporting investment. For instance, in seeking to engineer a sharp recovery.
the United States, the recently legislated Construction activity is still likely to fall over
Bipartisan Infrastructure Package will provide coming months, given sustained weakness in
substantial support for infrastructure investment. construction starts recently and a reduced
Funding associated with the Recovery Plan for pipeline of work. Nonetheless, expectations of a
Europe and accelerated depreciation tax modest recovery in construction activity later
incentives in the United Kingdom should also this year appear to be providing some support
contribute to a favourable environment for to current demand for steel and, in turn, iron ore.
European business investment. Fiscal policy has weighed on growth in China
over the past year. The consolidated fiscal
Chinese economic growth has stabilised balance of Chinese governments was around
but policy challenges remain 3 percentage points tighter in 2021 than in 2020
Economic growth in China was solid in the (Graph 1.9). The impact of fiscal tightening has
December quarter, after slowing considerably in been most apparent in infrastructure
the September quarter. Strong external demand
continued to support manufacturing activity
and exports (Graph 1.7). In addition, some earlier Graph 1.7
headwinds eased – specifically, automobile, steel China – Activity Indicators
December 2019 = 100
and concrete production have all stabilised in index index
recent months as supply constraints eased a Industrial production
110 120
little, targets for lower steel production were met
and authorities relaxed the stance of fiscal policy. 100 100
Household Goods exports
While the Chinese authorities have maintained a consumption
90 80
strategy of suppressing the virus, household
consumption held up reasonably well through 80 60
much of 2021 despite a number of localised
COVID-19 outbreaks and the targeted 70 40
D M J S D M J S D D M J S D M J S D
lockdowns applied in response; these 2019 2020 2021 2019 2020 2021
Sources: CEIC Data; RBA
lockdowns have nonetheless slowed the pace of
recovery in some parts of the services sector.
Conditions in China’s residential property sector Graph 1.8
remain weak following a period of regulatory China – Residential Property Market Indicators
index Construction investment* New housing prices %
tightening. However, property sales have been 120
Dec 2019 = 100 Six-month annualised growth
20
steady since August, at around 2019 levels 100 10
(Graph 1.8). Authorities have also eased financial 80 0
conditions slightly to limit further falls in sales,
index Starts Sales index
by encouraging a modest relaxation of bank Dec 2019 = 100 Dec 2019 = 100
100 100
financing restrictions for healthy property
developers, taking actions to assure buyers that 70 70
pre-sales will be honoured and providing direct 40 40
2017 2021 2017 2021
support to first home buyers. Regardless, the * Residential real estate investment excluding the purchase of land.
authorities have maintained their commitment Sources: CEIC Data; RBA
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 2 9investment, which has declined steadily since as issuing low-cost loans to banks to fund
late 2020. However, fiscal expenditure has projects that reduce carbon emissions, and it
increased notably in recent months and announced new tools to support small and
issuance of infrastructure-linked government micro enterprises by converting pandemic-
bonds has accelerated. Statements from Chinese related loan deferrals into longer-term funding.
authorities point to a further recovery in fiscal These measures have been accompanied by
spending and infrastructure-related construction statements from officials emphasising the need
over the first half of this year, adding further for greater support for the economy.
support to demand for Australia’s commodities The recent easing in Chinese financial conditions
exports. will support credit growth, which slowed a little
over the past year (Graph 1.12). Indeed, growth
Chinese authorities have eased financial in total social financing (TSF) has stabilised in
policies year-ended terms since September, and over
Since the previous Statement, the People’s Bank recent months has been supported by stronger
of China (PBC) has eased monetary policy in government bond issuance after local
several ways. It has lowered the reserve authorities were encouraged to bring forward
requirement ratio for most banks by 50 basis
points and reduced several of its main policy
interest rates – the one-year medium-term Graph 1.10
lending facility (MLF), and the seven-day and Chinese Lending Rates
and Reserve Requirements
14-day reverse repurchase agreements – by %
Reserve Requirement Ratios Lending Rates
%
10 basis points (Graph 1.10). The policy rate 5-year LPR
Large institutions
reductions have passed through into Chinese
10 4
Government bond yields, particularly at shorter Medium institutions 1-year LPR
maturities (Graph 1.11). There have been modest
declines in lending rates to households and 5 3
Small institutions 1-year MLF
businesses, as reflected in reductions in the one-
year and five-year Loan Prime Rates (LPRs) 7-day reverse repo
quoted by banks. The PBC also began some 0
S DM J S DM J S DM J S DM J S DM J S DM J
2
2019 2020 2021 2022 2019 2020 2021 2022
targeted funding programs in December, such
Sources: CEIC; RBA
Graph 1.9
China – Fiscal Indicators*
Graph 1.11
% Fiscal balance** Infrastructure investment index
Year-to-date Dec 2019 = 100
Chinese Government Bond Yields
% %
0 110
5-year 10-year
3.0 3.0
-2 100
2018
2021
-4 90 2.5 2.5
-6 80 2-year 1-year
2.0 2.0
2019
2020
-8 70
1.5 1.5
-10 60
J F MAM J J A S ON D 2019 2021
* Seasonally adjusted by the RBA.
1.0 1.0
**
M J S D M J S D M
Consolidated measure that includes central government, local
government and government funds; as a share of annual GDP.
2020 2021 2022
Sources: CEIC Data; RBA Sources: CEIC; RBA
10 R E S E R V E B A N K O F AU S T R A L I Atheir fiscal expenditure plans. Overall, TSF experiencing stress have around 40 per cent of
growth over 2021 was consistent with their outstanding bonds coming due in 2022.
authorities’ target for growth to be in line with Bond yields had increased sharply for several
nominal GDP. privately owned developers, including some of
The Chinese renminbi remains around its the country’s largest developers, but retraced
highest level in recent years against the some of this increase on reports that authorities
US dollar, having appreciated by over 8 per cent may relax restrictions on developers’ access to
on a trade-weighted basis since the beginning deposits on pre-sold properties (Graph 1.14).
of 2021 (Graph 1.13). In December, the PBC Bond yields have remained stable for most state-
increased the reserve requirement for foreign owned developers. The PBC has indicated a
currency deposits for the second time that year. preference for using project mergers and
This requires banks to hold more foreign acquisitions to reduce risks in the sector,
currency in reserve instead of converting it into whereby more financially stable developers
renminbi, which should slow the renminbi’s acquire projects from stressed developers.
appreciation. Trade surpluses and foreign Equity prices for banks and state-owned
investment continue to support the renminbi, property developers have increased amid
with significant foreign inflows to China’s signals of potential policy easing, while the
securities markets in the December quarter. broader equity indices have declined in line with
global equity indices (Graph 1.15).
Private Chinese property developers
remain under stress Upstream price pressures in the global
economy remain strong, but may have
Financial conditions have remained very tight for
peaked in some cases
many private Chinese property developers. A
number of major developers defaulted on US- Some non-labour input costs are showing signs
dollar bonds (including Evergrande and Kaisa), of stabilising at elevated levels. This is
extended maturities of bonds or defaulted on particularly evident in shipping costs and the
trust loans in recent months. To date, these price of semiconductors, both of which rose
developments have had limited effect on rapidly in the year or so following the onset of
broader financial markets. The larger developers the pandemic (Graph 1.16). Slowing growth of
input costs will, over time, alleviate upstream
Graph 1.12
China – Total Social Financing Graph 1.13
% %
Year-ended growth Ratio to nominal GDP
Chinese Exchange Rates
index yuan
30 250
Trade-weighted index*
(LHS)
106 6.2
20 200
Total* Yuan per US$
(RHS, inverted)
102 6.6
10 150
Total excluding
government bonds 98 7.0
0 100
2011 2016 2021 2011 2016 2021
* Measure targeted by authorities, which incorporates net government 94 7.4
bond issuance; includes local government bonds issued to refinance 2018 2019 2020 2021 2022
and substitute for state-backed corporate debt; RBA estimates prior
to 2016. * Indexed to 1 January 2018 = 100.
Sources: CEIC; RBA Sources: Bloomberg; China Foreign Exchange Trade System; RBA
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 2 11inflationary pressures for firms. However, some firms seek to rebuild inventories while
firms retain considerable pricing power because simultaneously meeting ongoing strong
of the ongoing strength in goods demand and demand for goods.
the persistence of supply chain bottlenecks; Energy prices remain elevated (Graph 1.18). The
supplier delivery times remain stretched, and sharp increase in global gas prices over the past
manufacturing output remains disrupted in year has been driven primarily by developments
sectors such as automobiles, where production in Europe, where strong demand and an inability
has been relatively slow to recover. Retail to increase imports of gas has caused
inventory-to-sales ratios in the United States also inventories to fall from already low levels. This
remain very low (Graph 1.17). Low inventory has lifted prices globally, as LNG suppliers have
levels would amplify the effects of any additional diverted shipments from Asia, despite Chinese
disruptions in global supply chains – including demand continuing to grow. Thermal coal prices
those arising from the Omicron outbreak – and also increased sharply in mid-2021, in response
prolong the resolution of supply bottlenecks as to a substantial increase in Chinese electricity
demand and some disruptions to Chinese
Graph 1.14 domestic supply. However, Chinese authorities
Chinese Developer Bond Yields
USD 2022 bonds by developer total liabilities
% %
Large developers* Medium-sized developers**
Graph 1.16
150 150 Supply Indicators
January 2016 = 100
index Semiconductor prices Delivery times PMI* index
Inverted scale
250 35
100 100
Sunac 200 40
150 45
Seazen
CIFI
50 50 100 50
Country Logan
Garden
Greenland index Shipping costs Auto production** m
1,000 6
0 0
A S O N D J A S O N D J 750 5
2021 2022 2021 2022
*
500 4
Developers with liabilities more than CNY500 billion.
** Developers with liabilities of CNY100 billion–CNY500 billion. 250 3
Sources: Bloomberg; RBA
0 2
2018 2022 2018 2022
* Purchasing Managers’ Index.
** Top five producing countries; dot indicates projection for November.
Sources: IHS Markit; RBA; Refinitiv
Graph 1.15
Chinese Equity Prices
4 Jan 2021 = 100
index %
Major indices Sub-indices Property
developers***
Graph 1.17
120
Major
120 US Inventory-to-sales Ratios
State-owned ratio ratio
Hang Seng state-owned
banks
100 100
CSI300 1.6 1.6
80 80 Retailers
Evergrande
suppliers*
1.4 1.4
60 Joint-stock 60
banks**
Private
Wholesalers
40 40 1.2 1.2
M J S D M M J S D M M J S D M
2021 2022 2021 2022 2021 2022
* Excluding Skshu Paint.
** Excluding China Merchants Bank. 1.0 1.0
*** Largest developers excluding those that have defaulted on bonds. 2016 2017 2018 2019 2020 2021
Sources: Bloomberg; Macquarie Research; RBA Sources: RBA; US Federal Reserve
12 R E S E R V E B A N K O F AU S T R A L I ATable 1.1: Commodity Price Growth(a)
SDR terms; percentage change
Since previous
Statement Over the past year
Bulk commodities 41 46
– Iron ore 58 −17
– Coking coal 10 343
– Thermal coal 57 219
Rural 3 29
Base metals 12 36
Gold 0 −2
Brent crude oil(b) 10 69
RBA ICP 8 26
– Using spot prices for bulk commodities 23 44
(a) Prices from the RBA Index of Commodity Prices (ICP); bulk commodity prices are spot prices.
(b) In US dollars.
Sources: Bloomberg; IHS; RBA
subsequently facilitated an increase in coal commodities, remain well below the historically
production that has partially alleviated this high level they reached in early 2021 (Table 1.1).
pressure. Oil prices have similarly been volatile. Iron ore prices fell early last year as Chinese
Russia–Ukraine tensions and tight supply have authorities enforced steel production curbs.
contributed to prices climbing further, offsetting However, prices have retraced about half of this
an earlier fall in November as reports of the in the past month or two as the outlook for steel
Omicron variant emerged. Oil prices are demand from the real estate and infrastructure
currently at their highest level since 2014 and construction sectors strengthened. Base metal
around 60 per cent higher than a year ago. prices remain elevated due to strong demand
Iron ore prices have also been very volatile in and rising energy prices. Prices for rural
recent months but, in contrast to energy commodities overall are well above pre-
pandemic levels.
Graph 1.18 Labour markets are generally tight, but
Commodity Prices
January 2016 = 100 the strength of wages growth varies
index index
800 250 Employment growth remains strong and broad-
LNG
600 200 based in most advanced economies. Unemploy-
400 150
Thermal coal Oil ment rates typically fell by 1–3 percentage
200 100
points over 2021, and are back around the levels
index index
500 200 prevailing before the onset of the pandemic
Iron ore Base metals
375 150 (Graph 1.19). By contrast, in a few economies
Steel
250 100
participation rates have recovered only modestly
125 50
over the past year and remain notably below
0 0
2018 2022 2018 2022
pre-pandemic levels. This is particularly the case
Sources: Bloomberg; IHS Markit; RBA; Refinitiv
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 2 13in the United States where health concerns and Inflation has remained high as services
an increase in retirements have been prominent. inflation has picked up
Labour supply is also currently being disrupted Consumer price inflation is well above central
in many countries by record high numbers of banks’ inflation targets in a range of advanced
people isolating because of exposure to and emerging economies (Graph 1.21). The
COVID-19. Job vacancies are likewise at record substantial pick-up in both headline and
highs in many economies, exacerbated by underlying inflation in advanced economies was
labour-matching challenges such as higher- initially driven by higher goods price inflation.
than-normal rates of retirements and However, inflation in services has lifted
resignations, changes in the composition of significantly in recent months, driven by
labour demand, vaccine mandates and reduced stronger housing services inflation and a
immigration. recovery in the demand for, and prices of, some
Wages growth has picked up sharply in a few pandemic-affected services (Graph 1.22). The
countries, notably in the United States and the acceleration in services inflation has been a little
United Kingdom (Graph 1.20). In these faster in economies that are recording high
economies, participation rates remain well wage inflation, but has also picked up strongly
below pre-pandemic levels, while labour in economies where wages growth is contained.
demand is strong. Wages growth has been Headline inflation has increased more than core
broad-based across industries, though strongest inflation, typically as a result of large increases in
in hospitality. In addition to paying higher global fuel prices and electricity costs.
wages, firms in these countries report paying Asia has generally been an exception to these
hiring and performance bonus payments more developments in global inflation. Underlying
commonly than before the pandemic. By inflation in most Asian countries remains below
contrast, wages growth has remained stable at its pre-pandemic average, especially in middle-
low levels in a number of other countries where income Asian economies where output remains
unemployment rates are low but labour supply depressed. Nonetheless, inflation has lifted to be
has largely recovered, such as in the euro area, above historical average rates in those
Canada and Australia. economies where economic activity has
rebounded more strongly, such as Taiwan, Korea
Graph 1.19
Labour Market Indicators
ppt
Relative to December 2019
ppt
Graph 1.20
Unemployment rate Participation rate
Wages Growth*
3 3 Year-ended
December 2020
% %
2 2 Canada
Australia
4 4
1 1
2 2
0 0
Latest New Zealand
United States
-1 -1 % %
United Kingdom
-2 -2 4 4
-3 -3 Euro area
Canada
Germany
France
United Kingdom
Spain
Italy
United States
Australia
New Zealand
Canada
Germany
France
Spain
Italy
United States
United Kingdom
Australia
New Zealand
2 2
0 0
2009 2015 2021 2009 2015 2021
* Labour cost indices used where available; compositionally controlled
average earnings for Canada and the United Kingdom.
Sources: Destatis; RBA; Refinitiv Sources: BoE; RBA; Refinitiv; Statistics Canada
14 R E S E R V E B A N K O F AU S T R A L I Aand Singapore. The rise in inflation in these most advanced economies to lift their inflation
countries has been driven by services prices. forecasts for 2022. Most central banks expect
inflation to continue to exceed their targets for a
Central banks in most advanced time, but to moderate to be closer to their
economies have tapered or ceased asset targets by the end of 2022 as supply constraints
purchases … ease, aided in some cases by the modest
Central banks in advanced economies have withdrawal of monetary policy stimulus.
provided significant monetary policy stimulus to The Bank of England (BoE) and Sveriges Riksbank
support the economic recovery. But many concluded net asset purchases in December
central banks have tapered or ceased their asset 2021 as planned, while the Reserve Bank of New
purchases as employment has grown strongly Zealand (RBNZ) and the Bank of Canada (BoC)
and larger, more persistent inflationary pressures ended their purchases earlier in 2021
than initially expected have led central banks in (Graph 1.23; Graph 1.24). The US Federal Reserve
(Fed) is now widely expected to complete net
purchases in March, several months earlier than
Graph 1.21 had been previously expected. At its December
Core Inflation* meeting, the Fed announced a doubling of the
Year-ended, deviation of current three-month average
from 2010–2019 average speed of its tapering process in response to an
ppt ppt
increased risk that elevated inflation outcomes
4 4 will persist as well as further improvement in the
labour market. The European Central Bank (ECB)
2 2
also confirmed that it will cease purchases under
0 0
its pandemic-era program in March 2022. In
contrast, pre-pandemic-era asset purchase
-2 -2 programs at the ECB and Bank of Japan (BoJ) are
expected to continue for some time.
-4 -4
Hong nesia
Thail g
Mala and
ysia
n
Norw a
Sing ay
apore
South India
Swe il
Austr a
Ta a
Switz iwan
d
Euro den
area
a
o
gdom
Unite ealand
nd
ia
Pola s
Braz
te
Even though central banks are tapering, or have
Kon
Japa
Chin
Unite Canad
Mexic
Kore
ali
erlan
Russ
d Sta
Indo
d Kin
Z
concluded their pandemic-related asset
New
* Headline measure used for Hong Kong.
Sources: CEIC Data; RBA; Refinitiv
Graph 1.23
Central Bank Government Bond Holdings*
Per cent of eligible stock outstanding
% %
Graph 1.22
Japan
Goods and Services Inflation – G7
Sweden
Excluding petrol, year-ended UK
% % 40 40
Euro area**
6 6
US
20 20
4 4 Canada
Goods
Services Australia
NZ
2 2
0 0
2017 2019 2021 2017 2019 2021
0 0 * Central government debt only for all countries except the euro area.
Dashed lines represent forecasts based on announced purchase
programs or recent pace of purchases.
** Holdings data for euro area only include bonds held as part of asset
-2 -2 purchase programs; holdings for other central banks also include
2011 2013 2015 2017 2019 2021 bonds held for operational or liquidity purposes.
Sources: RBA; Refinitiv Sources: Central banks; debt management offices; RBA; Refinitiv
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 2 15purchases, their large holdings of assets will … while some have increased their
continue to contribute to accommodative policy rate or are expected to do so later
financial conditions (alongside low policy rates this year
and term funding schemes). Several central Central banks in advanced economies either
banks have announced plans to keep the total began increasing policy rates in the second half
size of their asset holdings steady for a time by of last year or market pricing suggests they are
reinvesting proceeds from maturing bonds. For expected to do so in 2022 (Graph 1.25). Those
example, both the BoC and the BoE will central banks that had moved earlier to increase
maintain a roughly stable level of bond holdings their policy rates have retained the approach of
until they increase their policy rate to a certain setting policy rates in response to their forecasts
threshold. Fed Chair Powell has indicated that for inflation. This is in contrast to the Fed and the
the Fed will use at least one meeting after it first Reserve Bank, which have both indicated they
raises the policy rate to make decisions about its will base the increase in their policy rate on
plans for reinvestment and run-down of the actual inflation. Market pricing continues to
balance sheet, suggesting that the Fed could suggest that policy rates are expected to peak at
begin reducing the size of its balance sheet from historically low levels in most advanced
the middle of this year. This approach is in economies over the next few years.
contrast to 2014–2017, when the Fed
Over recent months, the following policy rate
maintained a constant level of asset holdings
movements have taken place:
until the policy rate had increased more
substantially. Fed policymakers have noted that, • In November, the RBNZ increased its policy
relative to the past, the economy is starting from rate by 25 basis points to 0.75 per cent,
a position of higher inflation and a tighter labour noting that capacity constraints in the
market, and the Fed has a higher level of asset economy had been much greater than
holdings. expected despite COVID-19-related
restrictions. The RBNZ revised up its
projected path of the policy rate and now
expects it will reach 2 per cent by the end of
Graph 1.24 2022 and peak at around 2½ per cent by
Central Bank Government Bond Holdings* mid-2023.
Per cent of GDP**
% %
Japan
• In December, the BoE increased its policy
80 80 rate by 15 basis points to 0.25 per cent. Most
members of the Monetary Policy Committee
60 60
saw the decision as finely balanced given
40 40 uncertainty surrounding the economic
UK
Euro area*** impact of the Omicron variant, but
Canada
20
US NZ
20
emphasised that the labour market
Sweden
Australia continued to tighten and that domestic cost
0 0
2017
*
2019 2021 2017 2019 2021 and price pressures had been more
Central government debt only for all countries except the euro area.
Dashed lines represent forecasts based on announced purchase
programs or recent pace of purchases.
persistent than expected. The BoE indicated
** Four-quarter rolling sum; forecasts are based on the IMF's World
Economic Outlook. that it expects some modest tightening of
*** Holdings data for euro area only include bonds held as part of asset
purchase programs; holdings for other central banks also include
bonds held for operational or liquidity purposes.
policy is likely to be necessary over the next
Sources: Central banks; IMF; RBA; Refinitiv
three years. Market pricing suggests that the
16 R E S E R V E B A N K O F AU S T R A L I ABoE will raise its policy rate by a further the BoJ to leave its policy rate unchanged until
25 basis points in February. at least 2025.
• In December, Norges Bank increased its
policy rate by 25 basis points to 0.5 per cent. Government bond yields have
It noted that above-normal capacity risen notably
utilisation, rising wages growth and higher Longer-term government bond yields in most
imported goods costs are expected to advanced economies have risen over recent
increase underlying inflation. In January, weeks to be around their highest level since the
Norges Bank reiterated that it expects to onset of the pandemic (Graph 1.26). This reflects
increase the policy rate further in March. improved confidence that the effect of the
• In January, the Bank of Korea (BoK) increased Omicron variant on economic activity will be
its policy rate by 25 basis points to relatively modest and short lived, as well as the
1.25 per cent, following an increase of the expectations of market participants that the Fed
same size in November. The BoK expects will reduce its asset holdings earlier, and then
inflation to run above the target level for a more rapidly, than previously anticipated. The
considerable period and expects to continue rise in longer-term yields has not reflected an
to raise its policy rate over time. increase in compensation for inflation (see
below). Shorter-term government bond yields
Beyond those central banks mentioned above,
have also increased in a number of advanced
the Fed will consider lifting its policy rate in
economies, most notably in the United States
March, shortly after the time that bond
and the United Kingdom, alongside a shift
purchases cease. Market pricing suggests that
higher in market-implied expectations for the
the Fed is expected to raise rates at least four
path of central bank policy rates (Graph 1.27).
times this year. The BoC is also expected to
begin increasing its policy rate from March. The The rise in longer-term yields has primarily
ECB said it is very unlikely that it will raise the reflected a rise in real yields, while longer-term
policy rate this year, in contrast to market inflation compensation has been steady, and
participants’ expectations that the ECB will raise generally remains around the level consistent
rates in the second half of 2022. The Riksbank with central bank inflation targets (Graph 1.28).
expects to leave its policy rate unchanged until Even so, real yields remain around historically
late 2024. Likewise, market participants expect
Graph 1.25 Graph 1.26
Policy Rate Expectations*
% % 10-year Government Bond Yields
US % %
2 2 2.0 2.0
NZ Australia
1 1 1.5 1.5
Euro area US
1.0 1.0
0 0
November SMP Japan 0.5 0.5
UK Canada
% %
% %
2 2 2.5 1.5
Canada Australia 2.0 1.0
1 1 NZ
1.5 0.5
UK Japan
0 0 1.0 0.0
0.5 -0.5
-1 -1 Germany
2021 2025 2021 2025 0.0 -1.0
*
M J S D M J S D M M J S D M J S D M
Dashed lines show expectations implied by overnight indexed
swap rates.
2020 2021 2022 2020 2021 2022
Sources: Bloomberg; RBA Sources: Bloomberg; Yieldbroker
S TAT E M E N T O N M O N E TA R Y P O L I C Y – F E B R UA R Y 2 0 2 2 17low levels across advanced economies and history after rising noticeably through 2020.
negative in most cases. Corporations continue to take advantage of low
borrowing costs and have issued debt at a
Private sector funding conditions have steady pace in recent months.
tightened but remain accommodative Equity prices in most major markets have fallen
Conditions in corporate bond markets remain sharply since early January in response to
accommodative. Over recent months, corporate market participants’ expectations that the Fed
bond yields have risen a little alongside will cease asset purchases and raise rates sooner
increases in government bonds yields than previously expected, as well as rising
(Graph 1.29). Credit spreads on sub-investment geopolitical tensions between Ukraine and
grade bonds initially increased late last year Russia (Graph 1.30). Share prices of some
following the emergence of the Omicron companies that have had relatively high
variant, but have since remained steady in the valuations – including some technology stocks –
United States and Europe. Corporate default have been more sensitive to the rise in interest
rates have declined to low levels relative to rates, in part because this increases the discount
rate applied to their high expected earnings
growth. More broadly, initial fourth quarter
Graph 1.27
corporate earnings results have not grown by as
Three-year Government Bond Yields
% % much as expected, particularly in the United
2.0 2.0
1.5
Canada
1.5 States where some financial and media
1.0 1.0
0.5
US
0.5 companies reported a rise in earnings but by
0.0 0.0
-0.5
UK Australia*
-0.5
less than market expectations. Equity issuance in
% % the United States and Europe has remained
2.0 2.0
1.5 1.5 steady in recent months.
NZ
1.0 1.0
0.5 0.5
Japan
0.0 0.0
-0.5 Germany -0.5 The US dollar is little changed
-1.0 -1.0
M J S D M J S D M M J S D M J S D M The US dollar has been little changed on a trade-
2020 2021 2022 2020 2021 2022
* The Australian three-year yield is an interpolated value. All other weighted (TWI) basis since early November and
series are the yield on a benchmark bond.
Sources: Bloomberg; RBA; RBNZ; Yieldbroker is around 3 per cent higher than at the
beginning of 2021 (Graph 1.31). The euro has
Graph 1.28
10-year Government Bonds Graph 1.29
% %
Real yield Inflation compensation* Corporate Bond Markets
1.0 4.5
% Yield (US dollar) Yield (Euro) %
Australia
0.5 4.0
9 9
Canada Sub-investment grade
0.0 3.5
6 6
-0.5 3.0
-1.0 2.5 3 3
US Investment grade
-1.5 2.0 bps bps
Germany Spread (US dollar)* Spread (Euro)*
-2.0 1.5
900 900
-2.5 1.0
UK** 600 600
-3.0 0.5
-3.5 0.0 300 300
M J S D M J S D M M J S D M J S D M
2020 2021 2022 2020 2021 2022 0 0
M J S D M J S D M JM J S D M J S D M J
* Spread between yields on nominal and inflation-linked bonds.
2020 2021 2022 2020 2021 2022
** UK inflation-linked bonds are linked to Retail Price Index inflation,
which tends to be higher than Consumer Price Index inflation. * Spread to equivalent maturity government bond yield.
Sources: Bloomberg; RBA; Yieldbroker Source: ICE Data is used with permission
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