Australian Reserve Bank Warns of ‘Sharp Correction’ in Financial Marketson November 24, 2021 at 4:51 am

The current historically low-interest rate has increased the risk of a looming “sharp correction,” the Reserve Bank of Australia (RBA) warned. In her keynote address, Marion Kohler, the head of the domestic markets department at the RBA, told the Australian Securitisation Forum that the central bank was keeping an eye on security markets. “One area of focus stems from the current historically very low-interest rates,” Kohler said. “Asset prices increase when risk-free rates are low, and this is part of the monetary transmission mechanism.” However, this also led to increased “search for yield” behaviour, where investors, in a low-interest environment, will consider putting riskier assets into their investment portfolios. “Investors bid up the price of risky assets to the extent that risk may no longer be adequately priced,” Kohler said. “This, in turn, increases the risk of a sharp correction down the road.” Kohler noted that during the Global Financial …

Rebecca Zhu

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