In a speech accompanying the release, the Reserve Bank of Australia outlined the Monetary Policy Board’s new framework for using additional monetary policy tools when the cash rate is very low and further stimulus is needed. The framework is intended to guide how the board would design, deploy and unwind unconventional tools, while reaffirming that the cash rate target remains the central bank’s primary and preferred instrument. It is built around four principles: tools should support the RBA’s inflation and employment objectives and be consistent with financial stability, deliver benefits that are reasonable relative to their costs, be operationally ready and flexible, and take account of broader public sector policies and the consolidated public sector balance sheet while preserving operational independence. The framework also sets out how the RBA would approach future use of such tools. It stresses clear identification of the purpose of each measure, explicit differentiation between tools aimed at macroeconomic stimulus and those used for market functioning or financial stability, ongoing reassessment across the full life of a tool, and exit planning from the outset. Drawing on the pandemic experience, the RBA said term funding facilities can lower funding costs but create balance-sheet and refinancing risks, bond purchases appear most effective in Australia when markets are impaired rather than as a broad demand-support tool, and stronger forms of forward guidance and yield targets are difficult to sustain in uncertain conditions and require caution. Negative rates and foreign exchange asset purchases remain in the toolkit, but the RBA indicated they would likely be considered only in truly exceptional circumstances, with negative rates not operationally ready in Australia. Next steps are to run internal fire-drills involving the Monetary Policy Board, Governance Board and staff to test readiness for decisions under pressure, and to update the framework over time based on those exercises, further research, international experience and any future use of the tools.
Reserve Bank of Australia2026-06-29
Reserve Bank of Australia publishes framework for additional monetary policy tools at low interest rates
The Reserve Bank of Australia has published a framework for how its Monetary Policy Board would use additional monetary policy tools if the cash rate is very low and more stimulus is required. It keeps the cash rate as the preferred instrument and says any unconventional tools should be used with clear objectives, ongoing reassessment and pre-planned exit strategies. The RBA also signalled that tools such as negative rates and foreign exchange asset purchases would likely be reserved for truly exceptional circumstances.