##s that banks hold with the rba overnight in exchange settlement accounts earn an interest rate 25 basis points below the cash rate. and on the other side of the corridor, in the event that a bank needed to borrow from the rba overnight, it would be charged 25 basis points above the cash rate. under this arrangement and with the cash rate now at 25 basis points, the interest rate on exchange settlement balances would have been zero. we have decided to increase this to 10 basis points. we are not making any change to the arrangements for the top of the corridor. this adjustment to the corridor reflects the fact that there will be a significant increase in the balances held in exchange settlement accounts due to the combined effect of the bank's enhanced liquidity operations, bond purchases and term funding program. maintaining a zero interest rate on these balances would increase the costs to the banking system. in the current environment, this would be unhelpful. the increase in settlement balances is also expected to change the way that the cash market operates. in other countries, where there have been large increases in balances at the central bank, the cash rate equivalent has drifted below the target and transaction volumes in the cash market have declined. it is likely that we will see the same outcome in australia. the reserve bank will continue to monitor the cash market closely and is prepared to adjust arrangements if the situation requires. so these are the four measures announced earlier this afternoon. together, they represent a comprehensive package to lower funding costs in australia and support the supply of credit. complementary initiatives by apra and the aofm are also working towards those same objectives. the term funding scheme and the three - year yield target are both significant policy developments that would not have been under consideration in normal times. they both carry financial and other risks for the reserve bank and they both represent significant interventions by the bank in australia's financial markets. the reserve bank board did not take these decisions lightly. but in the context of extraordinary times and consistent with our broad mandate to promote the economic welfare of the people of australia, we are seeking to play our full role in building that bridge to the time when the recovery takes place. by doing all that we can to lower funding costs in australia and support the supply of credit to business, we will help our economy and financial system get through this difficult period. thank you for listening and i am here to answer your questions. 5 / 5 bis central bankers'speeches

is changing all the time in response to a large number of forces. monetary policy is always having to analyse and assess these forces and their impact on the economy. but few of these forces have the scale, persistence and systemic risk of climate change. a longstanding way of thinking about monetary policy and economic management is in terms of demand and supply shocks. [ 6 ] a positive demand shock increases output and increases prices. the monetary policy response to a positive demand shock is straightforward : tighten policy. climate events have been good examples of supply shocks. indeed, droughts are often the textbook example used to illustrate a supply shock. a negative supply shock reduces output but increases prices. that is a more complicated monetary policy challenge because the two parts of the rba's dual mandate, output and inflation, are moving in opposite directions. historically, the monetary policy response has been to look through the impact on prices, on the presumption that the impact is temporary. the banana price episode in 2011 after cyclone yasi is a good example of this. the spike in banana prices and inflation was temporary, although quite substantial. it boosted inflation by 0. 7 percentage points. the reserve bank looked through the effect of the banana price rise on inflation. after the banana crop returned to normal, prices settled down and inflation returned to its previous rate. the response to such a shock is relatively straightforward if the climate events are temporary and discrete : droughts are assumed to end ; the destruction of the banana crop or the closure of the iron ore port because of a cyclone is temporary ; things return to where they were before the climate https : / / www. rba. gov. au / speeches / 2019 / sp - dg - 2019 - 03 - 12. html 3 / 10 3 / 13 / 2019 climate change and the economy | speeches | rba event. that said, the output that is lost is generally lost forever. it is not made up again later, but rather output returns to its former level. the recent ipcc report documents that climate change is a trend rather than cyclical, which makes the assessment much more complicated. what if droughts are more frequent, or cyclones happen more often? the supply shock is no longer temporary but close to permanent. that situation is more challenging to assess and respond to. a relevant question for monetary policy is how quickly and easily the economy adjusts to climaterelated shocks, particularly if the shocks are more extreme. both the impact of the shocks together