Compensation for risk actually tended to decline gradually, as a result of a very strong “search for yield” by investors and heightened competition among intermediaries to lend. Hence in net terms loan rates slowly fell, relative to the cash rate.
On the whole, though, changes in the cash rate came to be seen as driving most of the important rate changes in the economy quite precisely. This was, historically speaking, somewhat unusual. In the past 18 months or so, in contrast, a sharp reappraisal by investors around the world has seen compensation demanded for accepting risk increase.