1. Monetary Policy and Recent Economic Developments
May 2016
Teacher and Student Guide
Monetary Policy and Recent Economic Developments

2. Reserve Bank of Australia
Responsible for:
Monetary policy and market operations
Payments system stability & efficiency
Financial system stability
Issuing Australia’s currency notes
Banker to the government
Managing foreign exchange reserves
The objectives specified in the Reserve Bank Act (1959) are:
Stability of the currency
Maintenance of full employment
Economic prosperity and welfare of the people of Australia

3. Reserve Bank Board Responsible for monetary and banking policy
Nine members: Governor, Deputy Governor, Secretary to the Treasury, and six external members
Meets first Tuesday, except January

4. How the RBA achieves its objectives
Inflation targeting regime since 1993, agreed with the government since , and which was most recently updated in 2013
Objective is to keep annual inflation between 2 and 3 per cent, on average, over the cycle
CPI inflation is the target, but underlying measures – which abstract from temporary large price increases and decreases – help show future trends in ‘headline’ inflation
RBA sets the policy interest rate (termed the cash rate – the rate banks charge each other for overnight funds)
The RBA uses liquidity operations (altering the supply of overnight funds) to ensure the cash rate remains at target
Changes in the cash rate affect private mortgage and other lending and deposit rates that, along with any exchange rate response, affect the amount of private consumption and investment spending
Inflation will remain steady and low when total spending is kept close to the level of potential output over time

28. For more information Visit the Reserve Bank website:
Chart Pack (updated monthly)
Education
Statistics