RBA refrains from bond intervention, again

The Reserve Bank skipped another chance to suppress runaway bond yields in Friday’s session, reinforcing the view that it will bring forward its cash rate guidance to 2023, a year earlier than stated, amid rising inflation and expectations of monetary policy tightening in many advanced economies.

Markets are betting that strong price growth will persuade the Reserve Bank to raise interest rates sooner and faster than its 2024 forward guidance and are pricing in close to five rate increases next year with a kick-off as soon as February.

The yield on the April 2024 government bond, a proxy for the central bank’s forward guidance, jumped to 0.553 per cent, from 0.393 per cent, more than five times the RBA’s 0.1 per cent targeted level.

The central bank’s intervention was expected this week by analysts after surprisingly strong inflation figures on Wednesday lit a rocket under market expectations that the RBA would increase its cash rate as early as April 2022, well before its 2024 guidance.

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