Who operates monetary policy?: Who operates monetary policy?
The Reserve Bank of Australia (RBA) is responsible for monetary policy. The RBA was given 3 goals when it was created: Maintain low inflation Maintain low unemployment Maintain value of the A$ The RBA was only given one policy tool- the money supply to achieve 3 goals. In the mid 1990s, the RBA was simply told to have one aim: Maintain low inflation. Definitions: Definitions The RBA implements monetary policy through its control of the cash rate. Cash rate: The cash rate is the rate the RBA charges bank for loans within the RBA reserves system. The cash rate is the base interest rate for the economy, and all other interest rates are derived from it. Easy monetary policy: When the RBA lowers the cash rate to stimulate AD. Tight monetary policy: When the RBA raises the cash rate to cut off AD. Interest rates: Interest rates As we saw in the Investment section, the profitability of investment projects depends on the nominal interest rate. The lower are interest rates, the more projects wi
