monetary policy. having said that, the mid - march package is providing material help now and it will continue to do so. interest rates are lower than they have ever been before and the financial system is flush with liquidity. also helping is the fact that the australian financial system is in good shape. we went into the pandemic with strong balance sheets and high levels of capital in the australian banking system. this means that our financial institutions are well placed to provide the credit that the economy will need. one monetary policy option that has been the subject of public discussion over recent months is the possibility of the rba creating money to directly finance government spending. for some, this offers the possibility of a ‘ free lunch ’. the reality, though, is that there is no free lunch. there is no magic pudding. there is no way of putting aside the government ’ s budget constraint permanently. as i spoke about in a talk last month, it is certainly possible for a central bank to use monetary financing to affect when and how government spending is paid for. depending upon how things are managed, it can be paid for through the inflation tax, by implicit taxes on the banking system and / or higher general taxes in the future. but it does have to be paid for at some point. 3 / 5 bis central bankers'speeches i want to make it clear that monetary financing of the budget is not on the agenda in australia. the separation of monetary policy and fiscal financing is part of australia ’ s strong institutional framework and has served the country well. the australian government and the states and territories have ready access to the capital markets and they can borrow at historically low rates of interest. at a more practical level, i would like to mention a couple of other areas where the rba has been providing assistance with australia ’ s covid - 19 response. the first is as transactional banker for the australian government. over recent months the rba ’ s banking systems have been used to make record numbers of payments, processing the government ’ s income support to households and businesses. we have done this with around 90 per cent of our staff working from home and it has been a great effort by the rba ’ s banking and payments teams. the second is meeting the increased demand for banknotes. while covid - 19 has accelerated the shift to electronic payments, there has, paradoxically, also been record demand for banknotes. some people seem to be wanting to keep some extra money at home. the

10 - year yields. in announcing our yield target, the bank indicated that we are prepared to buy bonds in the secondary market in whatever quantity was needed to achieve the target. to date, overall bond purchases have totalled around $ 55 billion, with most of these bonds bought in march and april. these purchases have had the desired effect, lowering yields and they eased the market dislocation at the time. in the past week or so, we have again purchased bonds, buying around $ 6 billion. we have done this following a few weeks in which the yield on three - year bonds had been trading consistently a little above 25 basis points. the yield is now closer to 25 basis points and we are committed to maintaining the target. in taking the decision in march to target the three - year yield, the board considered the possibility of instead undertaking a regular program of bond purchases – say buying a set dollar amount of bonds each week – as a number of other central banks have done. we chose the yield target for a couple of reasons. the first is that it is a more direct way of achieving our objective of low funding costs. a bond purchasing program would have also lowered bond yields, but it would have done this indirectly, and there would have been challenges in calibrating the required size of these purchases. directly targeting a longer - term risk - free interest rate is also a natural extension of our target for the cash rate, which is the risk - free interest rate at the very start of the yield curve. the second reason is that this target reinforces the forward guidance regarding the cash rate. the board has clearly indicated that it will not increase the cash rate until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2 – 3 per cent target range. given the outlook i discussed earlier, these conditions are not likely to be met for at least three years. so it is highly likely that the cash rate will be at this level for some years and having a target for three - year yields of 25 basis points reinforces this message. so that is our rationale. we have not ruled out a separate bond buying program, or other adjustments to the mid - march package. but for the time being, the board ’ s view is that the best course of action is to continue with the current package. the board recognises that in the unique circumstances in which the country finds itself, the solutions to the challenges we face lie in areas other than