RBA Interest Rate Decision: Policy Objectives and Economic Outcomes

This report analyzes the Reserve Bank of Australia's (RBA) May 2020 interest rate decision, examining the rationale behind the decision in the context of the RBA's policy objectives, particularly concerning inflation and unemployment. The report explores the practical implementation of the monetary policy decision, focusing on open market operations and the management of the cash rate. Furthermore, it discusses the expected transmission of the policy decision to economic outcomes, including the impact on investment, savings, and overall economic activity. The report references the RBA's official statement and relevant economic principles to provide a comprehensive understanding of the monetary policy's implications. The report explains the effect of interest rates on citizens and the stock market.

Monetary Policy

Contents
Contents...........................................................................................................................................2
TASK...............................................................................................................................................3
1...................................................................................................................................................3
2...................................................................................................................................................3
3...................................................................................................................................................4
REFERENCES................................................................................................................................5

TASK
1.
Due to "major effects" of coronavirus sprout on Australian economy, In months June, Jul,
and Oct last year, Reserve Bank of Australia lowered official rates by three 25 basis points,
taking cash rate to record lower of 0.75%. With effective lower rate limit at the 0.25%, this
year, it's about whether bank will decrease to that point and when. The objective of RBA is quite
well defined. It needs to reduce unemployment rate to the lowest levels before inflation begins –
currently forecast at the 4.5% – while inflation is forecast at 2 percent to percent.
The main object is that prices will be high once again. The reductions in the second half of
the 2019 demonstrated promise as calculated against these goals. Significant advances on
the inflation has been made, due to the fact that its two to 3% inflation goal was systematically
and fully overlooked during the whole period of Philip Lowe. The small quarterly average,
which hit 1.8 % in December period, is 1.3 % in Mar 2019 – for a virtually zero rate (Monetary
Policy Decisions. 2020).
2.
The Reserve Bank's Board of Directors makes a choice regarding currency settlement in
relation to Australia. The options for funding methods are taken from a part of the lion that
makes a vote (with the President having an additional option when important). RBA executes the
tax strategy through managed exchanges on neighbouring currency markets. These exchanges
are largely applied following an open announcement that a national bank intends to buy or offer
liquidity to all banks and other balance sheet agencies. The value that the investment bank has
set to pay indicates who is strong at getting money or who is not. This method of uploading is
called open advertising functionality.

3.
There was little effect on stock market from this decision. ASX200 bench-marking index,
which for day immediately before announcement was up about 1.8 percent, slipped back 0.4
percent points. A cut in interest rate makes repayment of mortgage interest much more cost
effective, and thus promotes Australian citizen to lend monies. At other hand, lower cash-rate
discourages savings as Australians gain less interests in 'sitting' bank for money. Thus, Indirect
means, RBA is aimed at promoting investment which transforms into growing economic activity.

REFERENCES
Books and Journals