RBA Reviews Crisis Toolkit, Keeps Cash Rate as Primary Policy Lever

Q: Beyond interest rates, what new tools will the RBA use to fight inflation without triggering a recession?

The RBA has not announced a new anti-inflation tool that can replace rate rises and guarantee a soft landing. What it has said is that it wants a stronger crisis toolkit beyond the cash rate, drawing on instruments it used or reviewed in past shocks. In practice, that points to liquidity and market-functioning tools rather than a new inflation-fighting weapon. The review covers options such as bond purchases, yield-targeting, term funding for banks, repo and lending facilities, broader collateral rules, and emergency liquidity support. Those tools are designed to keep credit flowing and stabilize markets in crises, not to directly lower inflation in the way higher interest rates do. The broader evidence suggests the RBA is also looking more closely at macroprudential and financial-stability tools that can target specific risks, such as excessive credit growth or housing leverage, without crushing economy-wide demand. Better real-time monitoring of stress in households, firms and markets is part of that preparation as well. But the key point is that the RBA has not set out a concrete new package to fight inflation without recession. Chris Kent made clear the cash rate remains the primary instrument. The extra tools are mainly back-up measures for extraordinary conditions, intended to reduce financial damage and improve crisis management if rate policy alone is not enough.

3 articles · Updated · Bloomberg · Jun 28

Chris Kent said the Reserve Bank of Australia will be better prepared for the next crisis after reviewing alternative monetary policy tools.
The RBA still sees the cash rate target as its primary and preferred instrument, with other tools reserved for extraordinary periods.
Kent said those additional measures can provide extra support in a crisis but are more complex to use and carry greater risks.
The review signals the central bank is refining its contingency playbook rather than shifting away from its standard rate-based policy framework.