James Morley

As the RBA approaches the effective lower bound, it is becoming more important to signal exactly how long the policy rate is likely to remain well below its neutral level and to manage inflation expectations in financial markets and for wage/price setters. One way to do this would be to signal that the policy rate is expected to remain close to the effective lower bound until measures of inflation expectations, such as the break-even 10-year inflation rate (which was at 1.3% annual rate in September 2019), return to the high end of the target range of 2-3%. This would likely lead to further depreciation of the exchange rate and lower current and future real interest rates. By doing so, it should help offset the unanticipated effects of the recent undershooting of the target range for inflation in terms on future levels of prices and wages in the Australian economy. The maintenance of such low rates could be expected to last more than 6-8 quarters.

Outcome date: 
Monday 02 December 2019
Current rate: 
12 months: 
6 months: 

Updated:  23 February 2020/Responsible Officer:  Crawford Engagement/Page Contact:  CAMA admin