The interaction between monetary and macro-prudential policy

The Reserve Bank has recently developed a macro-prudential policy toolkit. This article considers how macro-prudential policy could interact with the Reserve Bank’s monetary policy function. While these policies are set with the differing objectives of financial and price stability, respectively, there is the potential for material spill-overs between them. Preliminary conclusions about how they should be set in conjunction with each other are discussed, touching on the interactions between the speed limit on high loan-to-value ratio (LVR) lending and monetary policy.