RBA’s Assistant Governor Christopher Kent said the transmission of monetary policy in Australia to financial conditions is “working in the usual way”. Change in RBA’s policy stance has underpinned the decline in risk-free rates along the yield curve. It has also contributed to a decline in the cost of funding in corporate bond markets, supported equity prices, and lowered the cost of funding for banks. Much of the reduction in banks’ funding costs has been passed through to business and household borrowers. Also, decline in interest rates has contributed to the depreciation of the Australian dollar.
On the exchange rate, Kent noted Australian dollar had depreciated over that period when commodity prices had been rising. And, that implies the effect of monetary policy on exchange rate has been “broadly working as usual”. He also pointed to noticeable decline in Australian interest rates relative to those of major advanced economies. And, “this lower return on Australian assets would no doubt have contributed to a decline in the value of the Australian dollar.”
