Monetary policy is what the Reserve Bank of Australia uses to manipulate Aggregate Demand, Employment, and Inflation within the Economy.

The Main Tool of Monetary Policy §

The Interbank Overnight Cash Rate is the main tool of Monetary Policy. The process it undergos looks like this;

• on the first tuesday of every month, analyse key economic indicators;
• if The Reserve Bank of Australia decides to alter the cash rate target, it will announce it at 12:30, and implement it from the next day.
  • RBA usually only alters the Cash Rate by ~0.25% per month.
• RBA then uses Open Market Operations as necessary to achieve that target in the Interbank Market.
  • The Interbank Market / overnight money market consists of Approved Deposit-Taking Instituitions (ADIs) who create demand for funds in the Interbank Market.

Indicators Taken into Account by the RBA in deciding Monetary Policy §

• Unemployment
• Economic Growth
• Unemployment
• Household Earnings
• Household Savings
  • Savings Pool?
• Exchange Rate
• Discussions w/ business people