Monetary Policy: RBA
Monetary Policy
Monetary policy is a macroeconomic policy implemented by the RBA to attain a set of objectives through the basis of a stable and maintained inflation band of 2-3%. Indirectly by the implementation of monetary policy, supply of money is affected through changes in the interest rate; cost of living is methodically altered to suit chosen economic conditions and economic growth is steadied and sometimes purposely stagnated.
There are two different directions for monetary policy to move, that is in a contractionary manner or an expansionary one. The implementation of contractionary monetary policy is indicative of a slowdown in economic growth due to a rise in the cash rate, whereas an expansionary policy would lead to increased …show more content…
One of the factors contributing to an influence of monetary policy is the level of the Australian dollar (currently at approximately $1.05 US). If a contractionary level of monetary policy were to be implemented, the Australian dollar would appreciate significantly, thus depleting our international competitiveness further and leading to external instability; figures show that exports have decreased by 8.7% while imports increased by 1.3% due to a high dollar making it cheaper to purchase.
A key factor to this is Australia’s external stability and global economic conditions; for example the debt crisis in Greece, acting as a potential contagion of global downturn, the US economy’s debt burden is also a negative impact towards global conditions. The key impact however to Australia’s external stability is the attempt of China to slow down their growth due to a high inflation rate of 5.5%, the highest China has seen in 3 years. The slow down in Chinas growth will see Australia’s exports decline, however our terms of trade will be buoyed by the high Australian dollar, seeing the highest level ToT in over 140 years at 85%, which is predicted to last at least 4 years, not to mention the resource boom which has greatly accelerated our growth in the mining …show more content…
Confidence dropped by 2.7% in recent months from 103.9% to 101.2%; contributing to this is the contractionary fiscal policy implemented by the government , decreasing government expenditure and raising government revenue through increased taxes. Also, factors such as above average interest rates ( highest in the developed world), tighter lending policies by banks, and the general increase of living standards due to cost-push inflation from the natural disasters in Queensland, and political unrest in Libya, increasing oil prices by 8.1%, fruit by 16% and vegetable prices by 14.5%
In the housing sector, rent has increased by 1.2% since February 2009 and house prices already said to have been the most inflated in the world (40% inflation level) have stagnated due to a lack of demand, thus showing a decrease in average house prices by 2.5% in the march quarter, therefore further reducing consumer confidence and showing further reluctance of the RBA’s decision to hike rates to 5%
Monetary policy is a macroeconomic policy implemented by the RBA to attain a set of objectives through the basis of a stable and maintained inflation band of 2-3%. Indirectly by the implementation of monetary policy, supply of money is affected through changes in the interest rate; cost of living is methodically altered to suit chosen economic conditions and economic growth is steadied and sometimes purposely stagnated.
There are two different directions for monetary policy to move, that is in a contractionary manner or an expansionary one. The implementation of contractionary monetary policy is indicative of a slowdown in economic growth due to a rise in the cash rate, whereas an expansionary policy would lead to increased …show more content…
One of the factors contributing to an influence of monetary policy is the level of the Australian dollar (currently at approximately $1.05 US). If a contractionary level of monetary policy were to be implemented, the Australian dollar would appreciate significantly, thus depleting our international competitiveness further and leading to external instability; figures show that exports have decreased by 8.7% while imports increased by 1.3% due to a high dollar making it cheaper to purchase.
A key factor to this is Australia’s external stability and global economic conditions; for example the debt crisis in Greece, acting as a potential contagion of global downturn, the US economy’s debt burden is also a negative impact towards global conditions. The key impact however to Australia’s external stability is the attempt of China to slow down their growth due to a high inflation rate of 5.5%, the highest China has seen in 3 years. The slow down in Chinas growth will see Australia’s exports decline, however our terms of trade will be buoyed by the high Australian dollar, seeing the highest level ToT in over 140 years at 85%, which is predicted to last at least 4 years, not to mention the resource boom which has greatly accelerated our growth in the mining …show more content…
Confidence dropped by 2.7% in recent months from 103.9% to 101.2%; contributing to this is the contractionary fiscal policy implemented by the government , decreasing government expenditure and raising government revenue through increased taxes. Also, factors such as above average interest rates ( highest in the developed world), tighter lending policies by banks, and the general increase of living standards due to cost-push inflation from the natural disasters in Queensland, and political unrest in Libya, increasing oil prices by 8.1%, fruit by 16% and vegetable prices by 14.5%
In the housing sector, rent has increased by 1.2% since February 2009 and house prices already said to have been the most inflated in the world (40% inflation level) have stagnated due to a lack of demand, thus showing a decrease in average house prices by 2.5% in the march quarter, therefore further reducing consumer confidence and showing further reluctance of the RBA’s decision to hike rates to 5%