The Reserve Bank of Australia has published a framework setting out how its Monetary Policy Board would design, assess and use additional monetary policy tools if the cash rate target nears zero and more stimulus is needed to support low inflation and full employment. The framework focuses on governance, risk management and decision-making rather than triggering any immediate policy action. It says any use of these tools must align with monetary policy objectives, offer benefits that are reasonable relative to potential costs, be operationally workable and flexible, and take account of wider public sector policy settings and balance sheet effects while preserving the board’s operational independence. The framework identifies six tools in the Reserve Bank of Australia’s toolkit: term lending facilities, government bond purchase programs, forward guidance with commitment, negative interest rate policy, term rate targets and foreign exchange asset purchases. Scenario analysis indicates term lending facilities and, in some cases, bond purchase programs are likely to be the most useful across a range of shocks, while forward guidance and negative rates are more suited to severe cases but carry higher uncertainty and risks. Term rate targets and foreign exchange asset purchases remain available but are described as less effective and more risky, making them tools for exceptional circumstances. For tools with material implications for the Reserve Bank of Australia’s or consolidated public sector balance sheet, the framework requires robust ex ante risk analysis and consultation pathways with the Governance Board, Treasury and, where relevant, agencies such as the Australian Prudential Regulation Authority. The Monetary Policy Board will review the framework at least every two years and sooner if needed, including after fire-drill exercises or any actual use of additional monetary policy tools. The Reserve Bank of Australia also released a supplementary technical document containing staff assessments of individual tools.
Reserve Bank of Australia2026-06-29
Reserve Bank of Australia sets framework for deploying additional monetary policy tools when rates approach zero
The Reserve Bank of Australia has issued a framework for how its Monetary Policy Board would use additional monetary policy tools if the cash rate nears zero and more stimulus is required. It sets principles, governance and risk controls for six tools, with term lending facilities and some bond purchase programs seen as the most broadly useful and term rate targets and foreign exchange purchases reserved for exceptional cases. The framework will be reviewed at least every two years.