bond purchase program, we need to be mindful that the bank's bond purchases do not cause dysfunction in the market, by the bank holding too large a share. as i said earlier, government bond yields are a very important benchmark and anchor of the financial system. for example, we would not want our bond purchases to push bond yields higher ( rather than lower ) because of market dysfunction, which resulted in an illiquidity premium. we do not think we are close to that point, but it is certainly something we are alert to. https : / / www. rba. gov. au / speeches / 2021 / sp - dg - 2021 - 05 - 06. html 16 / 26 5 / 6 / 2021 monetary policy during covid | speeches | rba purchases to address market dysfunction in march and april 2020, as was the case for many other central banks, the rba bought government bonds in the secondary market to alleviate the dysfunction in the australian government bond market at the time. these purchases helped to restore the functionality to this important pricing benchmark in the australian financial system, which serves as the risk - free pricing curve for most financial assets. that is, the government bond curve is an important reference point for other interest rates which are priced as a spread to it. the risk - free rate is also often the relevant discount rate to determine equity prices. hence it is important that the government bond market is functioning properly. the dysfunction was evident in the heightened interest rate volatility in the bond market, reflecting the reduced liquidity even in the us treasury market ( graph 8 ). there were wide bid / offer spreads, and bond dealer inventories were large and constrained by capital and risk considerations. as a result, the rba bought bonds across the maturity spectrum out to 10 years. since early may 2020, as market conditions improved, the rba ceased purchases for this reason. graph 8 ags bid - offer spreads bps bps 10 - year 3 - year m j s d m j s d m j s d m j sources : rba ; yieldbroker these purchases also are boosting liquidity in the system and putting downward pressure on government bond yields. even though their original motivation was different, they still achieve the same effect now as bond purchases under the bond purchase program. https : / / www. rba. gov. au / speeches / 2021 / sp - dg - 2021 - 05 - 06. html 17 / 26

scope to act quickly, and on a significant scale, when the outlook deteriorated. one of the obvious benefits of keeping your house in order over a long period of time is that you can more easily respond to changing circumstances if you judge that to be the correct thing to do. right now, there are a number of other countries that would clearly value that flexibility, but that do not have it because of decisions on fiscal policy running back over the past couple of decades. monetary policy was also able to respond rapidly when the outlook turned for the worse, with the cash rate being reduced by 4¼ percentage points over a seven month period. importantly, we were able to do this without causing inflation expectations and long - term interest rates to rise. the main reason for this is that the monetary policy framework in australia is seen as credible in ensuring that the inflation rate averages between 2 and 3 per cent over time. but again, the credibility of the framework did not rise out of thin air. instead, it is the result of nearly two decades of having delivered low and stable inflation. so in each of these areas – the exchange rate, the labour market, fiscal policy and monetary policy – the decisions that were made over a long period of time helped us get through the global downturn. looking forward, it is important that we do not lose sight of this. as the bank has set out a number of times recently, our central scenario for the australian economy is a reasonably favourable one. in this central scenario, we are likely to face a twospeed global economy for some time. while most of the advanced economies are expected to experience only a subdued recovery, weighed down by balance - sheet problems, asia is expected to grow solidly, with domestic demand in the region playing a greater role than in the past. if this is indeed how things play out, australia should be well placed, particularly given its strong trade links with asia and the generally bright outlook for the resources sector. but it is important to remember that this is only the central scenario. as we know, the global economy has a habit of throwing us surprises and there are clearly risks in both directions. over recent months, the economic data for a number of countries have been better than expected and it is possible that this could continue. on the other hand, it is also possible that financial events in the advanced economies could again derail the global economy, and growth in asia could disappoint. we clearly cannot control global outcomes, but what