GBP AUD Makes a Move for the 1.8800 Level

GBP AUD Makes a Move for the 1.8800 Level

The GBP AUD exchange rate was hovering above the 1.8700 level but traders have been reluctant to push sterling further. Boris Johnson said the country should move through the latest variant without restrictions, but eyes are on rising hospitals data. The Australian Reserve Bank was set to release charts today amidst criticism, while some expect them to end the stimulus program soon.

The GBP to AUD has resistance at the 1.8900 level and needs a further catalyst to get there.

More interested in charts than policy, critics round on central bank

The Reserve Bank of Australia’s quantitative easing policy may be hurting the long-term prospects of the economy, one of the country’s leading economists has warned. A former RBA official has said that the institution has failed the country and become more focused on formatting charts than policy.

In academic papers, Macroeconomics chief economist Stephen Anthony and Centre for Independent Studies chief economist Peter Tulip have both taken aim at the RBA’s monetary policy decisions.

The Labor Party and Coalition have both pledged to launch reviews of the Reserve Bank following next year’s election. The bank is the only major central bank not to have had an independent review over the past 40 years and recent complaints have said that interest rates were too high ahead of the recent recession.

The bank has held its official interest rate at 0.1 per cent since November 2020. On the quantitative easing policy, it has been purchasing A$4 bn of government bonds every week. The bank currently holds a record $326 billion of government debt including $265 billion federal debt.

Mr Anthony, a former treasury official argued that QE policies were useful in the short-term to deal with a crisis, but their ongoing use had distorted global markets and setting up a tough decade.

He said the use of quantitative easing on top of ultra-low interest rates and huge spending by governments was distorting the investment environment.

“Central banks are inadvertently guiding resources to lower-value activities distorting prices and risk,” he said.

Reserve bank could drop QE as soon as February

Economists now expect the Reserve Bank to halt QE experiment soon as next month, as the economy is not expected to be hurt by the latest variant.

A survey of 30 economists put the first post-pandemic era rate increase in June 2023, according to the median range. However, almost a third of those questioned, forecast a tightening as early as this year.

“Pressure will build on the RBA to begin policy normalisation by late 2022 with a lift-off in Q1 2023 even if wages growth is not quite above 3 per cent,” said RBC Capital Markets chief economist Su-Lin Ong. “There will still be enough compelling reasons to begin normalisation by early 2023.”

The central bank has stubbornly stuck to its assertion that it will not increase the cash rate until  inflation is sustainably within the 2 to 3 per cent target range.

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