Monetary Policy in Australia
Download the complete In a Nutshell 110KBThe Reserve Bank conducts monetary policy to achieve its objectives of price stability and full employment, and its overarching goal of promoting the economic prosperity and welfare of the Australian people.
It does this by using an inflation target to help keep inflation between 2-3%, on average, over time. The tool to manage inflation is the cash rate.
The Reserve Bank’s Monetary Policy Board is responsible for making decisions about monetary policy. The Board meets eight times a year to determine the appropriate monetary policy settings.
The cash rate has a strong influence over other interest rates, such as lending and deposit rates.
A reduction in the cash rate typically stimulates spending and inflation, while an increase in the cash rate typically dampens spending and inflation.
If inflation is likely to be too high (low) for too long, the Reserve Bank would typically tighten (loosen) monetary policy, such as by increasing (decreasing) the cash rate.