Australia's central bank on Tuesday took a major step toward unwinding extraordinary pandemic stimulus policies by abandoning an ultra-low target for bond yields and opening the door for an earlier hike in cash rates.
Wrapping up its November policy meeting, the Reserve Bank of Australia kept the cash rate at a record low of 0.1% but dropped its 0.1% target for the April 2024 government bond.
"The Board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2.5% at the end of 2023 and for only a gradual increase in wages growth," Governor Philip Lowe said in a brief statement. That is just part of a global sea change as surging energy costs and supply bottlenecks force central banks from Europe to North America to consider bringing forward tightening.
It is almost 11 years since the RBA last raised rates, setting them at what would now be an unbelievably high 4.75%. While the market has a series of hikes priced in, it does not see rates getting much above 1.75% in this cycle partly because households are far more indebted than in the past.
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