Deflation Threat in Australian Economy: Role of RBA and Monetary Policy

Running Head: ECONOMICS FOR MANAGERS
Economics for Managers
Name of the Student
Name of the University
Author note
Course ID

1ECONOMICS FOR MANAGERS
Executive Summary
The essay discusses the recent deflation threat of Australian economy raised in recent years. The
economy currently suffers with a lower than expected inflation rate. Both domestic and
interntional economic condition explain the below trend inflation rate. RBA sets the inflation
target in Australia and adjusts cash rate accordingly. Since last two years, RBA has kept the
interest rate fixed at 1.50 percent. The normalized interst rate affects the investors’ decision.
Structural factors such as globalization, status of labor market and technical changes explain the
low inflationary pressure in Australia.

2ECONOMICS FOR MANAGERS
Table of Contents
Introduction......................................................................................................................................3
Role of RBA in Australia................................................................................................................3
Monetary policy tools of RBA........................................................................................................4
Current economic environment of Australia...................................................................................5
Current monetary policy in Australia..........................................................................................7
Monetary policy and financial condition.....................................................................................7
Connection between recession and inflation...................................................................................8
Importance of leverages in the economy.......................................................................................10
Conclusion.....................................................................................................................................11
References list................................................................................................................................12

3ECONOMICS FOR MANAGERS
Introduction
Government of a country intervenes in economic activities to ensure a stable economic
performance. Fiscal and monetary policy are the two macroeconomic instrument for influencing
aggregate demand and other economic variables. Monetary policy particularly aims to maintain a
stability in the price level by influencing money supply and interest rate. Every economy tries to
achieve a sustained economic growth along with a low inflation (Bernanke, Antonovics and
Frank 2015). The Reserve Bank of Australia is the central bank of Australia. RBA conducts
monetary policy operation with the objective of maintaining a strong financial system. The essay
evaluates the article named “Is the deflation bugbear heading down under” drawing relevance to
current economic stance of Australia.
Role of RBA in Australia
. RBA also has the responsibility to issue currency. The Reserve Bank being a policy
determining authority provides some selected banking and other registry services the selected
government agencies. It also provides assistance to some overseas central bank and other official
institution. RBA also maintains the gold and foreign exchange reserve of Australia. The role and
responsibilities of RBA is set by different legislation. RBA is a legislative authority which is
established by Parliament’s act, the Reserve Bank Act 1959 (rba.gov.au 2018). The act provides
specific obligation and specific power to RBA. Followed by the act, two boards of the central
banks are: the Payment System Board and the Reserve Bank Board. It is the responsibility of
Reserve Bank to ensure a stable banking and monetary policy directing it to the advantages of
people in Australia. The primary roles of Reserve Bank Board are the following
a. Maintain stability in currency system of Australia