Role of Reserve Bank of Australia in Managing Deflation

Running head: ECONOMICS FOR MANAGER
Economics for Manager
Name of the University
Name of the Student
Author Note

1ECONOMICS FOR MANAGER
Executive Summary:
Based on the article “Is the deflation bugbear heading down under?”, the essay has tried to
observe the role of Reserve Bank of Australia an its available tools for carrying out its
functions related to money market. For this, the essay has discussed about recent economic
condition of Australia considering its economic growth, inflation and interest rate for the last
10 years. Moreover, it has discussed about the relation between inflation and recession and
negative impact of deflation on an economy.

2ECONOMICS FOR MANAGER
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
The role of RBA:....................................................................................................................3
Available tools of the RBA to carry out its functions:...........................................................5
Present Economic Environment in Australia:........................................................................6
Monetary Policy implemented by the RBA:..........................................................................8
Relation between Recession and Inflation:............................................................................9
Negative implication of Deflation:.......................................................................................10
Conclusion:..............................................................................................................................11
References:...............................................................................................................................12

3ECONOMICS FOR MANAGER
Introduction:
Deflation is a macroeconomic term that represents decrease in price level for goods
and services and during this situation, inflation rate becomes less than 0 percent. The chief
reason of deflation is fixed supply of money and this in turn increases purchasing power of a
country’s currency through allowing consumers to purchase more products compare to before
(Dinga 2017). In addition to this, deflation within an economy can occur if total supply
exceeds total demand. This economic phenomenon has generated significant problem for the
modern economy, as it leads real value of debt to increase further. This report will discuss
about the threat of deflation that the Reserve Bank of Australia (RBA) has experienced since
global financial crisis (Reserve Bank of Australia. 2018). The RBA is known as the
Australia’s central bank that performs various activities to stabilise currency, economic
prosperity, welfare of citizens and full employment. The bank has various monetary tools like
cash rate or open market operations with the help of which it can meet the targeted rate of
medium-term inflation for achieving a strong financial system along with a system of
efficient payments. The report will focus about the role of RBA in Australian economy
through analysing these monetary tools for carrying out its functions. In addition to this, the
report will also discuss about the present economic condition of this country considering
inflation and interest rates within the country. Moreover, the article, named, “Is the deflation
bugbear heading Down Under?” will be discussed further to understand about the relation
between inflation and recession (Morningstar.com.au. 2018).
Discussion:
The role of RBA:
The RBA controls the entire money market of Australia through implementing
various monetary policies to keep a strong financial system. In addition to this, the bank
posses the responsibility of note issue while it also provides various services related to