The operation of monetary policy
Monetary policy refers to actions by the Reserve Bank to influence the aggregate supply and cost of credit in the economy. The main tool of monetary policy is the Reserve Bank's use of market operations to influence the cash rate or interest rate paid on highly liquid deposits in the cash market or short term money market. By influencing the cash rate, the Reserve Bank is able to indirectly affect the term structure of interest rates in the financial system, which in turn will affect the level of spending, inflation and employment in the economy. As it is set out in the Reserve Bank's mission statement, the core objective of monetary policy is to ensure stable economic growth with low inflation, that is an underlying rate of between 2 to 3% over the course of the economic cycle, and full employment. Monetary policy is implemented by the Reserve Bank through the use of open market operations in the short-term money market. Through the buying or selling of Commonwealth government securities (for example, Treasury Notes), the Reserve Bank can influence the cash rate which is the interest rate paid on funds lent overnight in the short term money market. The cash rate is the principle instrument of monetary policy and if the Reserv
Unemployment is another determinant in what monetary policy stance the RBA wished to pursuit. It effects the level of unemployment through its effects on interest rates, which effects the level of investment spending and eventually the level of unemployment. The current unemployment rate is 7.4% and although it at a relatively respectable level, many economist believes that it is at the NAIRU point and further improvement is unlikely. From current statistics, job advertisements growth is slowing and trend employment has softened to 8 700 in January from around 18 000 six months ago. Therefore, there are risks that unemployment will start to rise. Therefore, it was appropriate that the government embarked an easing monetary stance by lowering its official cash rates. "The picture we are getting now is one in which consumer spending is still strong but the other contributors to growth in 1998 are beginning to slow."
Some common words found in the essay are:
Reserve Bank, Asia Europe, Reserve Bank's, Bank Australia, Saul Eslake, CAD Figures, Macfarlane Bank's, monetary policy, economic growth, reserve bank, cash rate, , reserve bank's, government securities, ANZ Bank, monetary objective, money market, 2 3%, low inflation, rate rate paid, sustainable economic growth, economic growth strong, short term money, cash rate rate,
Approximate Word count = 1569
Approximate Pages = 6 (250 words per page double spaced)
|
