The end of unconventional monetary policy in Australia

In early 2020, the COVID-19 pandemic severely impacted economic activity and bond market liquidity. In response, the Reserve Bank of Australia (RBA), in addition to cutting interest rates to near zero, introduced several unconventional policy measures. Among the most significant were the Term Funding Facility (TFF), Bond Purchase Program and Yield Curve Control program.

As the economy rebounded, rising inflation – initially thought to be transitory – triggered a rapid tightening of monetary policy. In addition to the fastest interest rate increases in a generation, the RBA also began to unwind its unconventional policy measures. The impact of this will likely become significant in the coming months. This paper explores the mechanics of the unwind of the TFF and the maturity of bonds purchased by the RBA and explains the possible effects on funding markets in Australia.