RBA to Abandon Yield Caps as It Signals Earlier Rate Rises

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By Stuart Condie SYDNEY–The Reserve Bank of Australia said it would stop using yield caps and signaled an earlier start to interest rate rises, joining other central banks that are tightening policy as inflation risks mount. The RBA kept its interest rate unchanged at a record-low 0.10%, where it has stood since late 2020. Still, the bank said it now believes that the key conditions for raising rates-full employment in Australia and inflation sustainably within a 2-3% band–could happen sooner than thought.

The RBA had previously said it wouldn’t be in a position to raise rates until 2024 at the earliest. On Tuesday, the central bank said it anticipates underlying inflation of about 2.25% over 2021 and 2022, and of 2.5% over 2023. Economists had widely predicted that the RBA would adopt a more hawkish policy approach after the central bank surprisingly opted against defending the 0.1% target on the April 2024 government bond last week. The RBA confirmed it would no longer defend the target but said it would continue buying government securities at a rate of 4 billion Australian dollars (US$3 billion) per week until at least mid-February. The Australian dollar fell by 0.4% to 74.93 U.S. cents after the announcement. Write to Stuart Condie at stuart.condie@wsj.com

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