speech monetary policy, demand and supply philip lowe [ * ] governor address at the national press club sydney – 5 april 2023 thank you for the invitation to address the national press club once again. it is a pleasure to be here. i would like to begin by explaining yesterday ’ s monetary policy decision. i will also discuss the importance of returning inflation to target and the roles that both aggregate demand management and expansion of the supply side of the economy can play in maintaining low inflation. yesterday ’ s monetary policy decision at yesterday ’ s meeting, the reserve bank board held the cash rate unchanged at 3. 6 per cent. this is after interest rates were increased at each of the previous 10 meetings ( graph 1 ). the decision to hold interest rates steady this month was taken to give the board more time to assess the economic outlook and the impact of the increases in interest rates so far. graph 1 australian cash rate target % % source : rba since may last year, interest rates have been increased by 3½ percentage points. this is a large increase over a short period and it has been difficult for many people. the first increases were necessary to withdraw the support provided during the pandemic. and then the more recent increases have been required to move monetary policy into restrictive territory to combat the highest rate of inflation experienced in australia in more than 30 years ( graph 2 ). to be clear, the alternative to the recent interest rate increases would have been more persistent inflation and, ultimately, even higher interest rates and more unemployment. graph 2 consumer price inflation * year - ended % % - 5 - 5 * excludes interest charges prior to the september quarter of 1998 ; adjusted for the tax changes of 1999 – 2000. sources : abs ; rba the decision to hold rates steady this month does not imply that interest rate increases are over. indeed, the board expects that some further tightening of monetary policy may well be needed to return inflation to target within a reasonable timeframe. it decided, though, that it was prudent to hold rates steady this month to allow more time to assess the impact of the increases in interest rates to date and the economic outlook. the board is conscious that monetary policy operates with a lag and that the full effect of the increases to date is yet to be felt. it is also conscious that there are significant economic uncertainties at the moment. given these lags and uncertainties, the board judged that, with monetary policy now in restrictive territory, it was time to

and wisely to aptly respond to the crisis. on the monetary front, manageable inflation allowed the bsp to cut the overnight borrowing rate by 200 basis points from 4. 0 percent to a record low of 2. 0 percent. the bsp also cut the reserve requirement further to 12 percent from 14 percent, thus freeing up more funds for lending to businesses and households. on top of these conventional monetary actions, the bsp implemented unprecedented measures to squarely respond to the crisis. 2 / 7 bis central bankers'speeches we granted provisional advances worth php540 billion ( us $ 11. 2 billion ) to the national government to augment its resources for covid response. the bsp ’ s charter allows us to extend lifeline support to the government in times of crisis, with proper safeguards. this facility, which allows short - term financing, does not serve as a long - term source of funds for the government because they are temporary, time - bound, and capped. the bsp has also purchased government securities in the secondary market to lift market confidence. however, this activity has been scaled down, as the economy recovers. in sum, the bsp has so far injected php2. 2 trillion ( us $ 45 billion ) into the financial system, equivalent to about 12 percent of gdp ( as of june 10, 2021 ). domestic liquidity has remained ample through the liquidity - easing measures of the bsp. preliminary data show that domestic liquidity expanded by 4. 7 percent year - on - year to about ₱14. 3 trillion in may 2021. bank lending growth, however, remains tepid. preliminary data show that outstanding loans of universal and commercial banks fell by 4. 0 percent in may following a 5. 0 - percent decline in april. the bsp also implemented various time - bound regulatory relief measures so banks and their customers can manage the impact of the crisis on their balance sheets and finances, and so there is more room for lending. among these are grace periods for loan payments, capping of interest rates on credit card usage, staggered booking of loan losses, counting of loans to micro, small, and medium enterprises ( msmes ) as compliance to the reserve requirement, increase in the single borrower ’ s limit, and higher limit on real - estate loans. meantime, on top of the time - bound regulations to help manage the impact of the pandemic, the bsp also continues the task of enhancing the regulatory environment for