liquidity. the rba had already been expanding its liquidity provision prior to the mid - march board meeting to address the growing dislocation in financial markets. https : / / www. rba. gov. au / speeches / 2021 / sp - dg - 2021 - 05 - 06. html 2 / 26 5 / 6 / 2021 monetary policy during covid | speeches | rba in september 2020, as the end - september deadline for the drawdown of funding under the tff approached, the board decided to expand the tff to provide additional low - cost funding equivalent to 2 per cent of lending in the banking system. it also decided to extend the drawdown period for this, as well as the additional funding linked to business lending, to june 2021. in october, the board changed its forward guidance to focus on actual outcomes for inflation, rather than expected outcomes in guiding its future policy decisions. at the november 2020 board meeting, the board decided on a further package of measures to support the economy : a reduction in the cash rate target, the 3 - year yield target and the interest rate on new drawings under the tff to 10 basis points, from the previous rate of 25 basis points a reduction in the interest rate on es balances from 10 basis points to zero the introduction of a program of government bond purchases, focusing on the 5 to 10 year segment of the yield curve. the rba would buy $ 100 billion of government bonds over the following six months in the secondary market, purchasing bonds issued by the australian government ( ags ) as well as by the australian states and territories ( semis ). the board took this decision given the assessment that australia was facing a prolonged period of high unemployment and inflation was unlikely to return sustainably to the target range of 2 – 3 per cent for at least 3 years. in february 2021, to provide further support to the australian economy as it recovered, the board announced that it would purchase an additional $ 100 billion of government bonds, after the first program was completed. those purchases are underway now. the policy actions taken to deliver low funding costs have had a number of complementary elements, and have been mutually reinforcing in underpinning low interest rates across the economy. next, i will explain each of these actions in detail. policy rate reduction the first policy action i will talk about is the reduction in the cash rate target. this has been the primary lever of monetary policy for more than 3 decades now. the effect

of this reduction in the cash rate on financial markets and the economy have been similar to the experience over those 3 decades. the reduction in the cash rate provides stimulus to the economy through a number of channels. when the cash rate is lowered it reduces funding costs for the banking system which in turn flows through to lower borrowing rates for households and businesses. these lower borrowing rates stimulate borrowing and economic activity. the lower cash rate also boosts the cash flow of existing borrowers. it supports asset prices, including housing prices, which boosts household wealth and hence spending. in addition, it puts downward pressure on the australian dollar which is stimulatory for the economy. https : / / www. rba. gov. au / speeches / 2021 / sp - dg - 2021 - 05 - 06. html 3 / 26 5 / 6 / 2021 monetary policy during covid | speeches | rba the board has reduced the cash rate target to what it assesses to be the effective lower bound of 10 basis points. the board has stated that it does not see negative rates as being appropriate in australia in the current circumstances. i see there are at least two reasons for this. first, there is uncertainty about the efficacy of negative interest rates, including because of the negative effect on savers. [ 4 ] second, and at least as important, there were other actions that the bank could take to provide monetary stimulus, which we have taken. in this episode, there has been an additional aspect of the cash rate reduction that is important to highlight. at the same time as the cash rate target was reduced in march and november 2020, the remuneration rate on es balances was also reduced ( graph 1 ). the remuneration rate on es balances is the interest rate the rba pays on deposits that banks hold with the rba ( i will refer to it as the es rate in the remainder of this speech ). when the cash rate target is reduced, the es rate is also reduced. graph 1 cash market rates % cash rate cash rate target * % es rate 0. 75 0. 75 0. 50 0. 50 0. 25 0. 25 0. 00 0. 00 m j s d * m j assumes unchanged future policy settings source : rba normally, this is not that important to anyone outside of those who manage the banking system's accounts at the rba. but this time around, the es rate has much more significance. in the past,