Monetary policy binns is key to the operation of our economy; it enables our monetary authority, the

Monetary policy binns is key to the operation of our economy; it enables our monetary authority, the Reserve Bank of Australia (RBA), to control the supply of money with the aim of influencing inflation, binns employment levelsand promoting economic prosperity. Controlling binns the supply of funds is an important role due to its significant impact on the economy; the balance required is reviewed monthly, with the aim, in Australia, of maintaining a 2-3% level of inflation per annum, preventing what the government sees as unstable growth , and helping the economy survive in times of little or negative growth. OPERATION
Specifically, two instruments commonly used in monetary policy are the cash rate (also knows the market interest rate on overnight funds) and quantitative easing (which is the purchasing of securities from commercial banks and other private institutions, raising the prices of those assets and lowering their yield). The cash rate is effectively the price of money. The overnight funds market is one in which the RBA and the banks loan money to other banks so that they may settle their accounts each night. Through arbitrage, (the practice of market entities taking advantage of pricing differences) a change in the lending rate in the overnight funds market changes binns lending rates throughout the economy, having the effect of increasing or decreasing the average discretional income and therefore binns increasing or decreasing the demand for goods and services. A higher demand drives up prices binns and a lower demand drives down prices. binns Through the issuing or purchase of securities, the RBA can also effectively either lend or buy from the public, increasing or decreasing the supply of money.
The Reserve Bank Board makes decisions about interest rates independently of the political process. That is to say, it does not accept instruction from the government on interest rates. Also, it has its own financing separate from government support. IMPACT ON THE AUSTRALIAN ECONOMY
Recently, the topic of monetary policy has again been hitting the headlines. The RBA s change of thinking with regards to the cash rate, the scaling back of quantitative easing in the US and the dramatic rise of the cash rate in Turkey have all demanded significant attention.
The RBA, in their March meeting, decided to keep the cash rate at 2.5%. This was surprising given that prior to the announcement, however, it was expected that the RBA would change cash rate, given the recent binns economic statistics that have been placing pressure on the RBA to change the rate.
Although the Australian economy is on the path to recovery, it is growing at a slow pace, as evinced, in particular, by the labour market. The slow wage growth of just 0.7 per cent in the December quarter made the wage price index 2.6 per cent higher for the year, the smallest growth in the index since the late 1990s.
The unemployment rate continued its gradual increase over the past 18 months to reach 6 per cent in January. Even though total hours had increased, the level of employment only changed slightly over the past year.
The binns housing market seems to have been boosted significantly by the low interest rates, as hoped. Conditions remain strong, coinciding with an increase in loan approvals and first home buyer grants, although house price inflation has declined slightly from the fast pace it had been increasing in 2013. Despite the slight decrease in housing investment in the December binns quarter, the strong increase in approvals for residential buildings in recent months binns points to a substantial increase in investment in the subsequent quarters.
The rise of Australian dollar s value in recent months also put downward pressure on interest rate. The exchange rate of Australian dollar has increased from 0.87 US dollar to near 0.93 US dollar in the past 3 months. Although exports grew strongly in the December quarter, with resource exports increasing at a quick pace, the strong currency will potentially hamper the development of export sector.
So, it seems that the RBA won t change interest rates in the near future; the shift in attitude binns towards relying on a decrease in the exchange rate to balance economic growth is prevailing, for now. U.S. INFLUENCE ON THE GLOBAL ECONOMY
The United States of America, one of the world s primary economic superpowers, has a great degree of influence over foreign economies. The great power the US economy wields and its global significance means that a great many have become reliant on its prosperity. Naturally, this dependence has profound consequences; countries must pay attention to the actions of the US and respond accordingly.
A recent example of this has been Ben Bernanke s parting decision for the Federal Reserve Bank to begin tapering binns the US quantitative easing policy in February. The $10 billion cut in monthly bond purchases from $75 billion to $65 billion binns has already forced the hands of countries to adapt th