26 / 11 / 2019 unconventional monetary policy : some lessons from overseas | speeches | rba speech unconventional monetary policy : some lessons from overseas philip lowe [ * ] governor address to australian business economists dinner sydney – 26 november 2019 thank you for the invitation to address this year's annual dinner of the australian business economists. this is the fifth time i have had the privilege of joining you. thank you for having me back. one recurring theme of my talks over the years has been the likelihood that interest rates will remain low for an extended period – certainly, much lower, on average, than before the global financial crisis. this theme remains highly relevant today. as i discussed in the sir leslie melville lecture at the anu a month ago, low interest rates are not a temporary phenomenon. rather, they are likely to be with us for some time and are the result of some powerful global factors that are affecting interest rates everywhere. given this assessment, it is not surprising that there is a lot of discussion internationally about the use of so - called ‘ unconventional ’ monetary policies. people are rightly asking : if interest rates are going to stay low and be constrained by a lower bound, what other monetary policy options are there? i have been part of these international discussions through chairing the committee on the global financial system ( cgfs ) at the bank for international settlements in basel. last month, the committee published a report titled : ‘ unconventional monetary policy tools : a cross - country analysis ’. [ 2 ] the report reviews the experience with the use of unconventional policy tools and discusses how these tools can be used by central banks to achieve their objectives. if you are interested in these issues and have not looked at the report, i encourage you to do so. https : / / www. rba. gov. au / speeches / 2019 / sp - gov - 2019 - 11 - 26. html 1 / 12 26 / 11 / 2019 unconventional monetary policy : some lessons from overseas | speeches | rba this evening i would like to summarise some key observations of the report and then explore how those observations might be applied to australia. the cgfs report – the ‘ unconventional ’ policy tools the report discusses four unconventional policy tools. the term ‘ unconventional ’ monetary policy has now become the conventional shorthand for a wide range of policies, although i am not sure it is the best terminology. i say this because most of these tools have always been in the toolkit of central banks and have been

been the chief contractionary force – is in the process of turning around, and that its upswing could be very pronounced. under these circumstances, it was perhaps not altogether surprising that financial markets ’ expectations about monetary policy began to change. they became less sure that we would ease again in may and, in fact, by the time of the meeting the majority of economists surveyed expected no change in interest rates. in our own thinking, we asked the question " what behaviour of ours can most contribute to building confidence? " at the april meeting, knowing that we still had some more work to do to get interest rates down to levels that were clearly expansionary, we had decided that a move larger than some people expected would probably be preferred to a more cautious approach, and might foster confidence. by may, we had three moves in quick time under our belt. we knew that interest rates were not acting as a constraint on the economy, but rather were at levels likely to assist growth. with financial markets slightly more upbeat about the outlook, we felt that a steady setting of monetary policy would help confidence. we were also sensitive to the possibility that, on this occasion, a surprise fall in interest rates could easily cause people to think that " things must be worse than we thought " and prompt the question " what does the reserve bank know that we don ’ t? " such a reaction, had it occurred, would have been counter - productive. what can we say about the future? inevitably, we can say less, i suspect, than you would like! policy has been returned to an expansionary setting, with the easing " front - loaded ". interest rates are close to the low points reached in the two most recent episodes of monetary policy easing. given that fact, and given that we see some promising signs in the economy and financial markets, there is a reasonable chance that the current stance of policy will turn out to be easy enough to achieve the desired results. but equally, while it is reasonable to expect that the promising trends of late will develop into stronger momentum for growth, we cannot as yet be confident. this, in turn, means that we cannot be sure that further monetary policy easing will not be required. the growth outlook rests on various assumptions, not least that international conditions stabilise before too long, and improve somewhat during 2002. that is a reasonable assumption on which to make a central forecast, but we need to be, and are, alert to the possibility of a weaker outcome,