such measures to be announced in september. and market pricing now implies that the ecb is expected to reduce its policy rate further into negative territory, from −40 basis points currently to −60 basis points by the end of this year. meanwhile, the bank of japan ( boj ) recently emphasised that it will consider additional easing measures ‘ … if momentum towards achieving … ’ its inflation target were to be lost. accordingly, market participants expect that the boj will lower its policy rate by 10 basis points to −20 basis points before the end of the year. given increasing concerns about downside risks to growth around the world, and generally subdued inflation pressures, market pricing implies that policy rates are expected to be lowered in a number of other advanced economies. in australia, with growth having slowed to a below - trend pace and inflation pressures subdued, the board of the reserve bank reduced the cash rate at its june and july meetings. the board noted that, although employment growth remained strong, there had been little inroad made into spare capacity in the labour market recently, with the unemployment rate having risen slightly. financial market prices currently imply that the cash rate is expected to be reduced by a further 25 basis points later this year and then again in the first half of next year. the response of financial markets globally towards the end of 2018, trade disputes were weighing on manufacturing, trade and business confidence around the globe. a broader easing in the pace of economic growth in some economies was also emerging, including in europe and china. financial markets responded to those developments, and rising concerns about the downside risks to the global outlook in an environment of subdued inflation. of particular note, longer - term interest rates turned down. those declines were extended more recently as the market reassessed the outlook for monetary policies as well as the outlook for growth in light of ongoing downside risks. with expectations that policies are likely to be more stimulatory than earlier anticipated, and with inflationary pressures remaining subdued, interest rates right along the yield curve have declined noticeably over the past year ( graph 4 ). yields at 10 years are back below 2 per cent in the united states, and are at historic lows elsewhere, including in germany, where 10 - year yields are trading at close to −60 basis points. rates in japan have moved by less, which appears to reflect the market expectation that the boj is not likely to provide significant additional stimulus. most notably though for this audience, the australian yield curve

and tourism, for example ). despite these possibilities, the upward trend in commodity prices was still likely to have provided some support to the value of the australian dollar over much of the past year or more. despite that support, the australian dollar had depreciated over that period when commodity prices had been rising. that implies that the effect of monetary policy on the exchange rate has been broadly working as usual. as i mentioned before, there has been a noticeable decline in australian interest rates relative to those of major advanced economies. at a two - year horizon, this interest rate differential has declined by about 100 basis points over the past year. this lower return on australian assets would no doubt have contributed to a decline in the value of the australian dollar. conclusion bringing all of this together, i draw the conclusion that the transmission of monetary policy in australia to financial conditions is working in the usual way. in particular, the change in the stance of policy has underpinned the decline in risk - free rates along the yield curve. it has also contributed to a decline in the cost of funding in corporate bond markets, supported equity prices, and lowered the cost of funding for banks, including through lower rates on bank deposits. much of the reduction in banks'funding costs has been passed through to business and household borrowers. and notwithstanding an easier stance of monetary policy globally, the decline in interest rates in australia has contributed to the depreciation of the australian dollar. that broad - based easing in financial conditions in australia will provide some additional support to demand in the period ahead. endnotes [ * ] i thank max wakefield for valuable assistance in preparing this material. see debelle g ( 2018 ), ‘ risk and return in a low rate environment ’ speech at financial risk day, sydney, 16 march. for a more detailed discussion of the implications of this and other trade disputes for the economic outlook see debelle g ( 2019 ), ‘ risk to the outlook ’, speech at the 14th annual risk australia conference, sydney, ( upcoming ). while global developments influence australian financial conditions, changes in monetary policy settings elsewhere need not, and do not, mechanically feed through to the funding costs of australian banks. for a further discussion of this point, see kent c ( 2018 ), ‘ us monetary policy and australian financial conditions ’, the bloomberg address, sydney, 10 december. as of june, retail deposits paying no interest accounted for a little under 10 per cent of the value of the major banks'retail