philip lowe : today's monetary policy decision speech by mr philip lowe, governor of the reserve bank of australia, sydney, 3 november 2020. * * * good afternoon. the reserve bank board met this morning. it decided on a package of further measures to support the australian economy as it recovers from covid - 19. given the significance of this package, i wanted to explain in person what we are doing and why we are doing it and to answer your questions. at its core, today ’ s decision reflects the reserve bank ’ s commitment to do what we reasonably can, with the tools that we have, to support the recovery of the australian economy. the board views addressing the high rate of unemployment as a national priority and it wants to do what it can to support job creation. importantly, today ’ s decision complements government efforts to support the australian economy and to lower unemployment. when the virus first arrived on our shores, economic policy quickly turned to building a bridge to the recovery. this was the right strategy and this bridge has made a major difference to people ’ s lives, helping many people and businesses get through a very difficult period. this bridge was constructed through close co - operation by governments across australia, the reserve bank, the financial regulators and australia ’ s financial institutions. for the reserve bank ’ s part, we have kept borrowing costs low and the financial system very liquid and supported the supply of credit to the economy. this broad economic policy response and australia ’ s progress on the health front have meant that the australian economy is in a better shape than many others. while australians have experienced a severe recession, it has not been as bad as was earlier expected or experienced in many other countries. in light of this experience, we have recently updated our economic outlook, with the full details to be published on friday. these updated forecasts will contain an upgrade to the near - term economic outlook, although there are a number of factors weighing on the medium - term outlook, including lower population growth. on balance, both the recent household spending and employment data have been a little stronger than we were expecting. it now appears probable that gdp increased solidly in the september quarter despite the lockdown in victoria. and growth over the year to june 2021 is expected to be close to 6 per cent compared with an expectation of 4 per cent growth when we reviewed our forecasts three months ago. the fiscal support, including through the budget, has played an important role here. the unemployment rate is

effects of this here too. even so, our interest rates did not fall as far as they did elsewhere due the combination of the resources boom, our relatively strong economy and higher levels of investment in australia. this year, the pandemic has brought another major shock, with investment intentions falling further. as a result, global interest rates and the return to savers have also declined. the gravitational pull of this on our own interest rates has been very strong. the rba has responded to this, with the policy rate now essentially zero in australia, as it is in many other countries. if we had sought to ignore this gravitational pull, there would have been obvious implications for our exchange rate and our economy. if our interest rates were higher than in the major countries there would be stronger inflows into australian dollar assets and this would put upward pressure on our exchange rate. in turn, this would make it harder to make the needed progress on jobs. over the medium term, i do expect to see a time when australia's strong economic conditions once again justify higher interest rates. but today, during a global pandemic when a lot of people have lost their jobs and many businesses are struggling, is not the time for that. the fourth and final change on the monetary front is the return to a world in which quantities, not just prices, matter. over recent decades, monetary policy has been about the price of money, or the short - term interest rate. little attention was paid to the quantity of money. this has now changed, with the rba now undertaking qe, or quantitative easing, as many other central banks are also doing. quantities and prices are obviously connected, so qe works partly through affecting the price of money, including long - term risk - free interest rates. but there are other effects too. when the central bank increases the quantity of money and buys assets, liquidity in the financial system is increased and investors in the private sector need to purchase other assets with the proceeds of the bonds they sell to the central bank. these portfolio adjustments can affect the price of other assets and international capital flows, as well as the exchange rate. we are still learning about how strong and durable these transmission mechanisms are, and we will learn more over coming months as we implement our own $ 100 billion qe program. to conclude, 2020 has been a year of great change and disruption. we are all talking about issues that few of us even contemplated at the start of the