(Bloomberg) — The Reserve Bank of Australia bowed to market pressure Tuesday, abandoning a bond-yield target and signaling it’s open to raising interest rates earlier than its previous 2024 guidance following a quickening of inflation.

Following a recent bond market sell-off, as well as a better domestic outlook supported in part by high vaccination rates and a declining yield on the April 2024 security, the decision was made to remove the 0.1% target. As expected, the RBA maintained its record-low 0.1% cash rate. 

“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.

While yields on the April 2024 bond that the RBA was previously targeting fell by about three basis points, the Australian Dollar traded at 74.96 U.S.cents at 2.36 in Sydney. 

Australia is now caught up in the global inflation debate that’s seen bond markets press policy makers worldwide to act promptly to counter rising price pressures. Data last Wednesday showed Australia’s core consumer prices jumped back inside the RBA’s 2-3% target for the first time in six years, sending yields surging. 

These numbers climbed even higher over the next two days after the central bank decided to not defend its 0.1% target for the April 2024 bond.

The RBA’s policy shift was underpinned by revisions to its economic forecasts, with the detailed suite of numbers to be released Friday in its quarterly Statement on Monetary Policy.

The Australian central bank’s move comes after its Canadian counterpart last week ended its bond-buying stimulus and just before the Federal Reserve is expected to announce a pullback of its debt purchases. The Bank of England also faces inflationary forces that have markets anticipating a hike at Thursday’s meeting or the one just before Christmas.

It is amazing how fast the narrative has changed. The RBA recently reiterated its belief that the conditions for an increase in rates are unlikely to be met by 2024. The RBA maintained that there is plenty of labor market slack and that it would take faster wage growth to bring inflation back to 2.5%, the target rate. 

The RBA’s predicament is the latest example of how unexpectedly strong inflation around the globe is putting pressure on central bankers to rethink policy timelines as the tradeoff shifts between supporting pandemic-hit economies and overjuicing prices.

Higher vaccination rates inspire optimism regarding the international outlook, while supply shocks push up raw material prices. The market signals that inflation is a real threat. It is imperative for policymakers to quickly respond to this danger to avoid it spiraling further.

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