the broader policy question, we have been considering what more we can do to support jobs, incomes and businesses in australia to help build that important road to the recovery. the options have been laid out in previous speeches by the deputy governor and myself and i don't plan to elaborate on these again today. [ 1 ] while the board has not yet made any decisions, i thought it might be useful to close today by highlighting three of the many issues we are working through. the first is how much traction any further monetary easing might get in terms of better economic outcomes. when the pandemic was at its worst and there were severe restrictions on activity we judged that there was little to be gained from further monetary easing. the solutions to the problems the country faced lay elsewhere. as the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier. a second issue is the possible effect of further monetary easing on financial stability and longer - term macroeconomic stability. this is an issue that we have paid close attention to in the past when we were considering reducing interest rates in a relatively robust economic environment. it remains an important issue today, but the considerations have changed somewhat. to the extent that an easing of monetary policy helps people get jobs it will help private sector balance sheets and lessen the number of problem loans. in so doing, it can reduce financial stability risks. this benefit needs to be weighed against any additional risks as people take more investment risk in the search for yield. we also need to take into account the effect of low interest rates on people who rely on interest income. a third issue is what is happening internationally with monetary policy. australia is a mid - sized open economy in an interconnected world, so what happens abroad has an impact here on both our exchange rate and our yield curve. in the past, the interest differentials provided a reasonable gauge to the relative stance of monetary policy across countries. today, things are not so straightforward, with monetary policy also working through balance sheet expansion. as i noted earlier, our balance sheet has increased considerably since march, but larger increases have occurred in other countries. we are considering the implications of this as we work through our own options. so these are three of the complex issues we have been considering at our recent board meetings. the board will continue to review these and other issues at our upcoming meetings. we are committed to do what we reasonably can, with the tools we have,

increase in banks'holdings of ags and semis would present a problem for liquidity in these markets. graph 6 another issue we considered in 2015 was the ‘ scarcity premium ’ that was present for ags. australia's relatively strong economic performance and aaa credit rating have been very appealing for investors globally. the scarcity premium was prominent in the years leading up to 2015, when the yield on ags was well below the expected cash rate over the period to maturity ( graph 7 ). since then, however, the scarcity premium has gradually dissipated. this has occurred alongside an increase in the stock of ags. it is also consistent with these securities being less tightly held. the combination of these changes suggests that the banks can now hold a higher share of the ags on issue without impairing the functioning of the market. graph 7 this brings us to the first of two changes that we have made to the settings of the clf. we have assessed that banks can increase their holdings of hqla securities from 25 to 30 per cent of the outstanding stock. this will result in the clf being smaller than it otherwise would have been. to minimise the effect of this change on the market, the increase will occur at the gradual pace of 1 percentage point each year, beginning with an increase to 26 per cent in 2020. setting the clf fee the second change we are implementing relates to the clf fee. the clf fee should be set at a level at which banks will face similar financial incentives to meet their lcr through the clf or by holding hqla ( if there were enough available ). however, determining this level of the fee is easier to do in theory than in practice. the starting point for determining the fee is to make use of the spread between the yields on hqla securities and the collateral that the banks hold for the clf. this collateral is all eligible for the rba's market operations, and is mainly the banks'self - securitised residential mortgage backed securities. we have estimated that this spread was around 90 basis points earlier this year. but the higher yield on clf collateral reflects compensation for a variety of risks. in particular, a sizeable share of the spread owes to the higher credit risk on these securities. however, the clf fee should only reflect the liquidity risk component of the spread, and that is very difficult to identify separately. when the reserve bank set the clf fee earlier this decade