Implications of low inflation for bond markets What are the implications of low inflation and low inflation volatility for interest rates and yield curves? I believe that market confidence in continued low inflation has helped drive down the slope of the yield curve around the world by reducing the premium demanded for holding long-term nominal assets.
We have taken advantage of the current conditions in the forex market to purchase significant amounts of foreign currency in the market as part of the process of building up our foreign exchange reserves. You might recall that in 1998 we had a negative net open foreign currency position of some $ billion. That was a difficult time for us here at the Bank.