Role Of Reserve Bank Of Australia And Interest Rates

2010 words - 9 pages

Definition of Interest RateAn interest rate is the percentage yield on a financial security or asset such as a loan, bond or savings deposit. A variety of interest rates exist in the economy because of differences in the risk, liquidity and maturity of various financial instruments or assets.Different Types Interest Rates (% per annum)Bank Current Deposit (at call) - 0.00%, June 2005Cash Rate Target - 5.50% (+0.25%), 2nd March 2005Banks Fixed Deposit Rate $5000 to $100,000 (5 years) - 4.75%, June 2005Finance Company Debentures (3 years) - 5.40%, June 2005Large Business Overdraft Rate (3 year variable) - 9.10%, June 2005Small Business Overdraft Rate (3 year variable) - 9.60%, June 2005The ...view middle of the document...

Time and maturity of a financial asset impacts on the interest rate. Short to medium term financial securities tend to have lower interest rates than longer term securities. The relation between short, medium and long term interest rates in known as the term structure of interest rates.The Role of the Reserve Bank of Australia in Interest Rate DeterminationThe Reserve Bank of Australia's (RBA) main responsibility is formulating and implementing Monetary Policy; which is a macroeconomic policy instrument used for counter cyclical stabilisations. Policy decisions are made by the Reserve Bank Board with the following objectives:Objective Target InstrumentPrice Stability 2% to 3% CPI inflation Cash Rate and DMO'sFull Employment NAIRU of 5% to 6% Cash RateEconomic Growth Sustainable Growth of 3% to 4% Cash RateThe RBA implements monetary policy through its market operations. Market operations refer to the buying and selling of Commonwealth Government Securities (CGS) and Repurchase Agreements (Repos) by the Reserve Bank in the cash market. The RBA sets a cash rate target each day in the cash market and attempts to ensure sufficient liquidity or cash to meet market demand so the cash rate doesn't change (this is known as liquidity management).The cash market is a market for financial institutions to have access to deposit and lending facilities to settle debts between themselves, via their Exchange Settlement Accounts. Banks, financial institutions and large companies deposit any surplus cash in the market in order to earn interest. Conversely, institutions with a deficit in cash can borrow from the cash market. The demand for cash is determined by the reserves of cash (Exchange Settlement Funds) held by banks in their ESA's with the RBA.The RBA controls the volume of cash through its direct market operations (DMO's) on a daily basis. Purchases of CGS and Repos by the RBA will lead to a rise in the supply of cash in the banks' ESA's/ When the RBA sells CGS or Repos commercial banks will withdraw funds from their ESA's and make a payment to the RBA, reducing the supply of cash in the market.Sale of CGS or ReposPayments of CashEffects of monetary lightening1. A decrease in the supply of cash or liquidity in the cash market2. A higher cash rate and other maker interest rates that make up the yield curveThe above figure illustrates how the RBA can tighten the stance on monetary policy by changing the cash rate using market DMO's. If the RBA wants to tighten monetary policy it would sell CGS and Repos, withdrawing cash from banks ESA's. This would decrease the supply of cash and liquidity in the cash market relative to the demand for cash. The cash rate would rise and eventually flow on to other market interest rates leading to higher interest rate structure in the economy. This would discourage spending and reduce inflation and inflationary expectations. However, if the RBA saw the need to ease monetary policy it would buy CGS or Repos from commercial...

Other Essays On Role Of Reserve Bank Of Australia And Interest Rates

the meaning of australia day Essay

487 words - 2 pages The Meaning of Australia DayWhat is Australia Day?Australia Day is on January 26 annually and commemrates the establishment of the first European settlement at Port Jackson,which is now part of Sydney,in 1788.It is an opportunnity for Australians to come together to celebrate their country and culture.There are refletions on the achievments of the nation and explorations of way to make the country even better in the future.And an interesting

How Does Baz Luhrmann's Gain Sympathy For Romeo And Juliet And Engage The Interest Of A Modern Audience?

936 words - 4 pages Baz Luhrmann's production of Shakespeare's classic play "Romeo and Juliet" is updated to the hip modern suburb of Verona still retaining its original dialogue. Clever details and a mix of modern props and Shakespearian language have helped this film become hugely popular through the years since its release in 1996. Luhrmann uses many techniques to ensure that he engages the interest of a modern audience by rejuvenating a classic story made more

With The Application Of Banking Theories, Differentiate Between The Terms 'banks' And 'non-Bank Financial Institutions' (NBFIs)?

765 words - 4 pages benefits that can be offered to their customers. Besides in the types, they may also differ in their interest rates of up to 1.2% per annum. The non-bank financiers are usually much cheaper, but they suffer in general from a lack of flexibility.In addition, The bank financial institutions is required to have a banking license, while an NBFI is a deposit taking institutions which do not hold a banking license but take deposits and lend, often in closely

Describe the responses of individuals, groups and governments in Australia to the challenge of reconciliation

613 words - 3 pages During the century of nationhood, reconciliation has been an ongoing issue in Australia. Reconciliation means different things to people, but a common understanding is that all Australians deserve to have equal life opportunities, and that genuine reconciliation will only exist when indigenous disadvantage has been eliminated. Many steps have been made along the road to reconciliation as a result of the positive responses of individuals, groups

Environmental Causes Of Cancer This Essay Was Written Over Various Environmental Causes Of Cancer, Their Incidence Rates, And Other Related Information

2021 words - 9 pages exposed to the radiation. The blast sent 50 tons of radioactive dust into an area of nearly 140,000 square miles, covering parts of the Ukraine, Belarus, and Russia, and spread 200 times more radioactivity than the atomic bombs on Hiroshima and Nagasaki combined. Over 4.9 million people are estimated to have radiation exposure as a result of the disaster, and numerous studies are still being conducted to identify increases in other cancer rates

The Threat Of Terrorism For Australia

1675 words - 7 pages such as the Sydney Olympics.CONCLUSIONWith the rise of terrorists who may pursue any means to achieve their goals, Australia faces enormous challenges coping with the ever-changing nature of post-modern terrorism.Although the prime responsibility for responding to and countering a terrorist threat rests with State Police Departments, the ADF plays an essential role in providing specialist assault forces capable of dealing with high risk terrorist

Does Australia Need A Federal Bill Of Rights? Discus With Reference To Specific Cases And Legislation

2002 words - 9 pages France and the United States of America are two countries that have seen fit to implement a 'Bill of Rights' into their constitution, which guarantees the liberties and freedoms of the individual, and reinforces the basic rights of all human beings. But does Australia Need a Bill Of Rights? The Australian Constitution does not include a specific section detailing the rights of the individual, although it has existed for over a century through

List the impacts of changing sea levels and climate on Australia

556 words - 3 pages Australia is an ancient landmass. The Earth is about 4600 million years old and the Australian continent is about 4300 million years old. Over many millions of years Australia has undergone many changes Ð mountain ranges and inland seas have come and gone. As mountain ranges eroded, sediments many kilometres thick were laid down over vast areas. These sedimentary rocks were then subjected to folding, faulting and uplifting. Over time, the

Should Australia reduce its use of coal and build its own nuclear reactor for generating energy?

446 words - 2 pages Coal provides about 78% of Australia's electricity. It is also the main source for carbon dioxide emissions from electricity and heat production. Coal fires produce pollutants into the atmosphere; mainly they are the gases carbon dioxide and sulfur dioxide. These cause acid rain and lead to the greenhouse effect. Australia is practically the only developed country not using electricity from nuclear energy.If Australia was to replace its coal

Potential Impacts of Uber in Australia - Business Communication and Technologies - Case Study

1702 words - 7 pages people. Consumers like the increase in competition, and believe it will be beneficial; they are already seeing the rewards as one particular Uber user was astonished at the price difference between Taxis and Uber rides (Lewis, D 2015). Uber was legalised on the 4th August 2016 (Booth, C 2016). This occurred because we have a mixed economy in Australia, and therefore Queensland. A mixed economic system contains aspects of the market, command, and

The Role Of Language

490 words - 2 pages the role of language, as it shows many faces in my life. Gestures, motions, and batting eyelashes, can be interpreted in different ways by different groups of people. Without the exchange of words we would not be able to interact with others.For me personally, the role of language has helped to get me through the rough and tough times of the sport I love; soccer. As a young child I developed a love for this sport and knew that this is what the

Similar Papers

Financial Regulators Of Australia And All About Interest Rates

513 words - 3 pages Reserve Bank of Australia - overall financial system stability Objectives of RBA: stability of Australia's economy (prevention of fall of a financial system that could cause a substantial reduction of economic activity), maintenance of full employment and economic prosperity/welfare of Australians Realistic focus: sustain low inflation Functions of RBA: Stability of economic system - provides guidelines for

Year 11 Economic Analysis Of China And Australia, Including Economic Growth, Employment And Unemployment, Quality Of Life And Role Of Government

2267 words - 10 pages is a major achievement for China as it is a symbol of success of its economic transition. Australia, however, is becoming more and more like an industrial country and its HDI has dropped from No. 2 a few years ago to No. 3 now.Role of GovernmentChinaBudget: Total revenue - $268 billionTotal expenditure - $303.2 billionChina's relatively low revenue is due to the low tax rates it has set upon the economy.Public Debt - 30.1% of GDPCurrent Account

100 Years Of Junior Reserve Officer Corp Jrotc Essay

528 words - 3 pages 100 Years of JROTC Ever since 1916, when the National Defense Act was enacted, the Junior Reserved Officers’ Training Corps (JROTC) has been influencing the lives of many young citizens, teaching them loyalty, duty, respect, selfless service, honor, integrity, and personal courage. Today, after 100 years of JROTC, it still lives on and will grow larger as times goes by. What started off as a small program is now the primary source of leadership

Simulation Optimistaion Of Income Of A Bank Bams Assignment

1565 words - 7 pages need to be transferred to Central Reserve Bank from Hampshire & Kent Bank to maximize the profit of Hampshire & Kent bank as the cost of transfer and the interest is fixed. In order to propose a solution to your problem we decided to make the best use of @risk software as this provides us the chance to build a model which can perform multiple iterations at the given conditions in very less amount of time and gives us a chance to make the optimized