Australia Drops Yield Target, Joins Global Policy Unwinding

The Reserve Bank of Australia bowed to market pressure Tuesday, abandoning a bond-yield target after an acceleration in inflation spurred traders to price in higher borrowing costs, Bloomberg News reported. The decision to scrap the 0.1% yield target on the April 2024 security comes after a bond market selloff last week and amid an improving domestic outlook underpinned by high vaccination rates. The RBA kept its cash rate at a record low 0.1%, as expected. “Given that other market interest rates have moved in response to the increased likelihood of higher inflation and lower unemployment, the effectiveness of the yield target in holding down the general structure of interest rates in Australia has diminished,” Governor Philip Lowe said in a post-meeting statement. The currency was on track for its biggest one-day loss since September as Lowe added that it was still “likely to take some time” for inflation to sustainably return to its target. Short-end sovereign bonds also erased losses as the RBA damped bets for aggressive tightening. Read more.