KK5 - Unconventional Monetary Policy

Question 1

Forward Guidance

Answer 1

-The central banks communication of the ‘stance’ of monetary policy, so market participants know the future path of interest rates
-Time based guidance means the bank commits to a stance for the future
-State based guidance refers to committing to not increase interest rates until a certain economic condition
-Reinforces RBA’s commitment to low interest rates
-Influences future spending, AD

Question 2

Exemplar

Answer 2

In March 2023, the RBA Governor Philip Lowe stated that “some further tightening of monetary policy may be required to ensure that inflation returns to the target of 2-3 percent. But that will depend upon how the economy and inflation evolves.