CANBERRA, AAP – The Reserve Bank of Australia is keeping a close eye on assets and investments on financial markets to ensure they are being correctly priced after the shock of the coronavirus pandemic.
RBA head of domestic markets Marion Kohler said concerns around the economic effects of COVID-19 and the associated rise in uncertainty caused a sharp adjustment in securities prices.
“(But) the period of volatility was brief,” she told an online conference on Tuesday.
“Risk premiums have increased in the initial phase by much less than during the global financial crisis, and were elevated for a shorter period.”
However, she has warned that a historically low interest rate environment does raise the prospect of “search for yield” behaviour.
“Investors bid up the price of risky assets to the extent that risk may no longer be adequately priced,” she told the Australian Securitisation Forum.
“This, in turn, increases the risk of a sharp correction down the road. So, it’s important to closely monitor risk premiums to judge whether asset prices appear to be sensibly valued.”