One Responsibility Of The RBA – monetary policy

Posted on January 20th, 2010 in Financial Planning by

One Responsibility Of The RBA – monetary policy
You probably hear the name of it on the radio or TV news almost every day, but how much do you understand about the responsability of the Reserve Bank of Australia? Known as the RBA, Australia’s central bank plays an key role in the economic system of our country, and on a personal level affects how much how are paying for your home loan

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interest. So what do you need to know? Let’s start with several of the essential things. In 1911, the Commonwealth Bank of Australia was established as a fundamental bank. It was restructured to become the Reserve Bank of Australia in 1959, with the aim of holding onto central banking purposes while the commercial and savings functions were shifted to a new constitution still known today as the Commonwealth Bank of Australia.

The RBA’s main obligation, as set out in the Reserve Bank Act 1959, is monetary policy. Before you run and hide from a snooze-inducing word like “policy”, all you need to know is that monetary principle is one of the instrumets that the government authorities uses to influence our economy.

While the RBA offers banking services to some commercial banks and government customers, it’s not a commercial bank intended to service the general public. So there’s no need to worry about applying for an RBA savings account or wonder why you haven’t seen any Reserve Bank ATMs nearby.

And how does the RBA set interest rates? Well, it’s not a bunch of people in a council chamber throwing darts at some kind of number board and letting the point decide. The level at which interest rates are set is based on the cash rate, which is the interest rate on overnight loans in the market. The interest rate moves up and down all the time; this movement is important for the economy as it needs to adjust to keep up with inflation and deflation.

Like the participant who gets to be the banker when you play Monopoly (or any other board game that involves money), the RBA uses its authority to control the supply and availability of currency, with the unenviable task of juggling low unemployment, low inflation, economic growth, and a balance of external payments.

So what does this mean to you? In a nutshell, quite a lot. The RBA set interest rates, which means if you have a home debt with anything except a fixed interest rate, the of the RBA affect the total you make for your repayments.

It’s a tough occupation for the RBA but a vital one to keep the big Australian game of Monopoly, known as our economic system, running suave.

One Responsibility Of The RBA – monetary policy by BRUCE TAYLOR