Cash Rate Decision Essay

Cash Rate Decision Essay

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Central banks are the main determinant of a nation’s economic growth, playing a significant role in the sound function and stability of the financial system. The Reserve Bank of Australia (RBA) is a prime example of a central bank, responsible for the supply of Australian currency notes, the effectiveness of the payments system, developing and implementing the monetary policy and hence the overall solidity of the financial system in Australia. The Reserve’s principal task is to administer The Monetary Policy, which focuses on the management of the official cash rate, also known as the interest rate on overnight loans in the money market. This cash rate is crucial to the economy as it influences many factors such as the behavior of borrowers and lenders, economic activity and ultimately, the rate of inflation (Reserve Bank Of Australia, 2001–2014). On the first Tuesday of every month except for January, the Reserve Bank Board comes together to discuss in depth the current progress of economies and financial markets both in Australia and internationally. A decision on the official cash rate is then made, taking into account the three main objectives of The Monetary Policy, which is to ‘maintain a price stability, full employment, and the prosperity and welfare of the Australian people’ (Reserve Bank Of Australia, 2001–2014). For the month of May, 2014 it is forecasted that the cash rate be sustained at a current level of 2.5 per cent, as in the RBA’s April overview it openly states that “based on the outlook for inflation and activity as it currently stands, the Board’s view is that a period of stability in the policy rate is likely” (Reserve Bank of Australia, 2014). This decision is based on the growth or decline of many factors, ...


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...s?. Retrieved April 24, 2014, from http://articles.economictimes.indiatimes.com/2009-05-31/news/27654163_1_interest-rates-repo-rate-cash-reserve-ratio

Zhao, M. (2005). Measuring The Impact of Interest Rate On Housing Demand. Retrieved from National Housing Conference website: http://www.nhc.edu.au/downloads/2005/DayTwo/ZhaoM_Paper.pdf
McErvale, T. (2014, April 09). Why government should encourage property investment. The Advisor. Retrieved from http://www.theadviser.com.au/blog/29998-why-government-should-encourage-property-investment
Canstar Research. (2013, December 03). RBA Official Cash Rate Considerations: What makes the cut?. Retrieved April 24, 2014, from http://www.canstar.com.au/home-loans/cash-rate-considerations/

Wise Lord & Ferguson. (2014). Interest Rates: What you need to know. Retrieved from http://www.wlf.com.au/files/docs/fp/interest%20rates.pdf

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