The Reserve Bank has spelled out what it will do when rates inevitably approach zero.
Last night, in a much anticipated speech broadcast live on the Reserve Bank’s website, Governor Phil Lowe laid out in very clear terms the circumstances in which the bank would resort to quantitative easing and the way in which it would implement it. Here’s what you need to know.
Quantitative easing is simply a change in the way it eases monetary policy when the official interest rate approaches zero.
Usually it does it by cutting the so-called cash rate, which is the rate banks pay each other for money deposited overnight.
Eight years ago the cash rate was 4.5%. Three years ago it was 1.5%. After the most recent three cuts in June, July and October, it is just 0.75%