The Reserve Bank of Australia has capitulated to market pressure by dropping its policy to suppress short-term bond yields and has opened up the possibility the record low 0.1 per cent cash rate could rise in late 2023, earlier than expected.

But market pricing for hikes in 2022 is “a complete overreaction” to inflation data, governor Philip Lowe said in a surprise press conference late Tuesday, and such an eventuality was “extremely unlikely” despite underlying inflation exceeding the RBA’s expectations two years ahead of forecasts.