The Reserve Bank of Australia admits its monetary policy tools have become more complex in supporting the economy through the pandemic.
Assistant Governor for financial markets Chris Kent has used a webinar speech to explain the central bank’s policy operations, at a time of heightened speculation of a further easing in interest rates.
“In a world of unconventional policies, assessing the stance of monetary policy is not as straight forward as it once was,” Dr Kent said.
“It used to be that looking at the board’s cash rate target, and coming to a view on its likely path, provided a reasonable summary of the stance of monetary policy.”
But on March 19 the RBA introduced a new package of measures other than cutting the cash interest to a record low 0.25 per cent.
It also set a 0.25 per cent target for the three-year Australian government bond yield and introduced a Term Funding Facility (TFF), which provides funding to banks, also at 0.25 per cent.
“Some of the tools influence interest rates directly in a way that gives us greater control over a wider range of rates than previously,” Dr Kent told the IFR Australia DCM Roundtable webinar.
This was particularly the case for the three-year bond yield target.
His comments come as economists speculate the central bank is on the brink of cutting rates at its November 3 board meeting.
In a speech last week, Governor Philip Lowe said the board had been considering what more it could do to support jobs, incomes and businesses.
As the economy opens up after the coronavirus-induced lockdown it was reasonable to expect a further monetary easing would now have a greater impact, he added.
Economists expect a cut in the cash rate to 0.10 per cent and similar reductions to its three-year bond target and the TFF, as well as an expanded bond buying program for maturities greater than three years.
The minutes of the RBA’s October board meeting are due later on Tuesday and will be dissected by economists to see to what degree a possible easing in policy was discussed by its members.