The Reserve Bank of Australia (RBA) is Australia's central bank, whose "duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people," according to its website.
The RBA does this by conducting monetary policy, establishing an interest rate in order to meet a medium-term inflation target, and maintaining a strong financial and efficient payments system. The bank also issues the country's currency and manages its gold and foreign exchange reserves.
The RBA in its current form was created by an act of Parliament, the Reserve Bank Act 1959. It is also empowered to control risk in the financial system and promote an efficient and competitive payment system.
The RBA, which acts independent of the government, consists of two boards:
- The Reserve Bank Board, which is responsible for monetary policy and financial stability
- The Payments System Board, which governs matters related to the payments system policy.
Quantitative Easing Measures
Like many other global central banks enacted in 2020, the RBA stepped in with accommodative monetary policies in order to mitigate the economic effects of the coronavirus pandemic.
In March 2020, it cut its benchmark cash interest rate twice, to an all-time low of 0.25%, and set a target of 0.25% for the yield on three-year Australian government bonds. It also said it would not tighten monetary policy until it achieves its employment and inflation goals. The RBA is buying Australian government debt in the secondary market as well, a process known as quantitative easing.
The institution also announced a A$90 billion three-year funding facility for Australian banks to enable them to make loans to small and medium-sized businesses. The RBA will make loans at a fixed rate of 0.25%, up to 3% of the individual bank's existing outstanding credit, with additional funding if they increase lending to businesses. The program is complementary to a similar program being run by the government.
The Reserve Bank of Australia (RBA) is the country's central bank, responsible for issuing its currency and managing its gold and foreign exchange reserves. Created by an act of Parliament in 1959, the RBA is authorised to conduct monetary policy in order to meet its medium-term inflation target, maintain a stable currency, and promote full employment and economic prosperity. It is also empowered to maintain a strong financial and efficient payments system.
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…