Economic Analysis of Reserve Bank of Australia's Monetary Policy and COVID-19 Impact

This report provides an economic analysis of Reserve Bank of Australia's monetary policy, implementation, impact of COVID-19 pandemic, and post-pandemic cash rates increase. The report helps understand how the bank dealt with the crisis and how the economy and underlying sectors were able to get back on track.

Reserve Bank of
Australia
RES ER VE BAN K I N C R EASES O FFIC IAL R AT E AM ID IN FLAT IO N
FEAR S

Reserve Bank of Australia
The bank is identified as the central bank of Australia, established in 14
January, 1960.
The ownership of the bank is 100% held by the state, with Philip Lowe as
its Governor.
The main policy of the bank is to control the inflation conditions while
maintaining rates between 2-3%.
The Reserve Bank also provides services to the Government of Australia
and other central banks.

Implementation of the Monetary Policy
Through the open market operations, where the
treasury bills and government securities are purchased
or sold.
The Intra-Day Liquidity Facility is also available to
equity share account holders, with proceeds valued at
market price.
Overnight Liquidity facilities provided to the Equity
shareholders, with the repo rate being 0.25%.
Furthermore, the shareholders may invest in short term
deposits, by clearing the tender process.

Impact of COVID-19 Pandemic
The reserve bank of Australia regarded the pandemic as
a natural and economic crises, for public, private and
household sectors.
The cash rates were reduced twice in March 2020 to
0.25 percent and 0.1 percent in November, 2020.
The bank initiated the plan related to the Government
Bond Purchase Program, supporting the economy
through transmission mechanisms.
Provision of facility related to Term funding for
banking systems was also proposed, to support lending
to the businesses.

Post the COVID-19 Pandemic
To help stabilize the economy of Australia after the COVID-19 pandemic,
the banks increased the overall cash rates to 2.35%, which was at 1.85%
earlier.
The cash rate which was proposed is now at its highest level if compared
with the rate in 2015.
The financial markets of Australia are also focused on estimating the future
probability of the rising rates.
Cash rates were increased by the bank, to help mitigate the effects of
soaring inflation in the economy.

Conclusion
The economy of Australia is adversely affected by the pandemic, however
by application of various techniques and tools by the Reserve Bank of
Australia, the economy and underlying sectors, such as the private, public
and household sector was able to get back on track. The report helps
understand impact of the increased cash rates post the COVID-19
pandemic and how the bank dealt with it.

References
Birch, E.R. and Preston, A., 2022. The Australian labour market in
2021. Journal of Industrial Relations, 64(3), pp.327-346.
Song, L. and Zhou, Y., 2020. The COVID‐19 pandemic and its impact on the
global economy: what does it take to turn crisis into opportunity?. China &
World Economy, 28(4), pp.1-25.
Kim, S. and Lim, K., 2018. Effects of monetary policy shocks on exchange
rate in small open Economies. Journal of Macroeconomics, 56, pp.324-339.
May, D., Nodari, G. and Rees, D.M., 2020. Wealth and consumption in
Australia. Australian Economic Review, 53(1), pp.105-117.