Understanding The Role Of RBA And Current Economic Environment In Australia

Role of RBA

The essay discusses the role of Reserve Bank of Australia in the country. The essay discusses the tools and measures used by the RBA to control and regulate the financial market in the country. The tools used by the Reserve Bank of Australia at disposal to carry out the function in the economy. The Reserve Bank of Australia performs the function in order to maintain the stability in the country, which can contribute, to the development in the country (Morningstar, 2017). The growth and development of the country is the only aim of the Reserve Bank of Australia. The measures have been taken by Reserve bank of Australia to control the inflation, deflation, and recession in the country. The factors, which leads to these problems arise in the country, has also been discussed in the essay. The other measures related to the advantage and performance of Australia has been discussed (Tamura, 2014).

Reserve bank of Australia plays an important role in Australia. Reserve Bank of Australia is responsible to make the monetary policy in the country so that the flow of money will be there in the economy. RBA is the issuer of currency in Australia and has the sole authority to issue the currency in the economy. Reserve Bank of Australia has been established in the economy to foster the economic stability and promotes the economic growth and development in the country. This will bring the efficiency in payment system (The balance, 2018).

A central bank is an independent national authority that conducts and regulates the functioning of monetary policy in the country. The central bank uses measures to control the financial performance in the country by controlling the outflow and inflow of money and currency in the country. This can be done by using the monetary tools in the economy. The Reserve Bank of Australia is using the various tools to achieve the monetary policy goals of the country (The National Bureau of Economic Research, 2011). Reserve Bank of Australia wants to achieve the quantitative tools in the economy by managing the bank and discount rate, reserve requirements of the country (Johnson, 2014).

The country is facing the problem of low interest and inflation rates in the country due to the ammunition crisis in the country. These crises potentially affect and force the ultra-easy money policies by making use of the quantitative tools of monetary policies. In these quantitative tools of monetary policies, changes in the interest rates are done by the central bank of the country to manage the situations of inflation and deflation in the country (The National Bureau of Economic Research, 2004).

If Australia is facing the problem of inflation in the country then the reserve bank of Australia will put the high-interest rate in the country so that the people will take the less loan due to the high-interest rate ion them. This will make low purchasing power in the market, which will help in lowering the inflation in the country (Pfitzner, 2014).

Tools available at disposal of RBA to carry out its functions

There are some other quantitative measures has been used by the Reserve Bank of Australia which include open market operation. In this tool, the central bank makes the purchase and sales of government securities, bonds, assets, and yields in the market. At the time of inflation in the country, RBA starts selling the securities in the market so that the purchasing power of the country can be taken by the government by giving them the securities. This will help them to maintain the stability in the country (Reserve Bank of Australia, 2018a).

The current economic environment in Australia is found to be stronger in nature. Australia has a stronger growth driven economy, which was driven by the increased demand in the country. This will slow down the unemployment rate in the country. In Australia, the economy is found to be just one recession away from deflation, inflation. The interest rate in the country seems to be lower for a period in order to tighten the overall market. In the market of Australia, RBA Governor Philip Lowe states that the inflation in all the countries found to be low whereas in Australia it is found to be expected to be increasing gradually. Wages in the country has been taking a great speed in order to improve the standard of living in the country. The RBA tries to manage the option, which able to reduce the unemployment rate in the country (The National Bureau of Economic Research, 2011).

It is predicted by ANZ and NAB that the interest and inflation rates in the country going to be increased in near future in Australia due to the slow rate of growth in the country. Normally the average rate of inflation is going to be increased is around 2 to 3 per cent in a year. The domestic inflation in the country is found to remain below 4% in the Australian market. From the analysis, it can be understood that the inflation will fluctuate around 2 percent in the next 3 years. However, due to the high competition in the market and focus gave on the financial stability in Australia and New Zealand, the inflation is getting more concern (Morningstar, 2017).

The scenario of Australia is found to be investor orientated. The inflation, deflation, and changes in rates of interest are due to the investor playing in the market. They have the influence over the interest rates in the country indirectly. If Australia is operating in low inflation then the interest rate in the global market will also be low (Prior, Giurco, Mudd, Mason and Behrisch, 2012). The rise in the US interest rates depicts downfalls in the currency of Australian dollar. The economic environment not only affects the inflation and interest rates in the country but have the capacity to affect the investor implications in the market. Due to the high inflation in the market, the currencies of Australia will depreciate in the market. From the table, it can be analyzed that the rate of unemployment has been decreasing since the year 2018 to 2020 by providing the opportunities to grow and sustain in the market for a long period. The growth rate in the country has also found to be increasing in nature, which helps in increasing the overall consumption and production of the economy (Reserve Bank of Australia, 2012).

Current economic environment in Australia

(Source: Reserve Bank of Australia, 2018)

The effect of this economic environment also affects the decision-making by the RESERVE BANK OF AUSTRALIA and many investors in Australian and other markets. The implication of these policies is seen in the decision-making by the investors in managing their assets and portfolios (Reserve Bank of Australia, 2018).

For the local people living in the country, normalization of policy has been used. In some bad cases scenario, the average inflation rate is finding to be below 2 per cent in the economy of Australia and others. This is just one way to reduce the recession way from the deflation in the country. Recession can be defined as the downfall of the economy due to the economic activities performed in the country. On the other hand, the term inflation is general increases in the price level due to the market. The connection between the inflation and recession can be understood only by analyzing the economic activity performed in the environment, which affects the inflation done price level of the country (Reserve Bank of Australia, 2014).

The recession is caused in the economy due to the negative GDP in the country. It is related to inflation in a manner that the negative GDP reflects that the country production is not growing or in another way, the prices level in the country is raised to that extent which makes impossible for the market to purchase the goods and services. In this way, the recession and inflation are related to each other in Australia. The recession can be aroused due to the high inflation in the country, war, natural disasters government policies, unemployment and other natural destructions (Reserve Bank of Australia, 2015).

The deflation is found dreaded in the economy as it makes the nominal interest rates not falling to zero. This would make a reduction in saving of the bank. The general price level in the economy keeps on decreasing due to the effect on the interest rates in the country. In comparison to deflation, inflation is found better to have in the country (Rovai, and Downey, 2010). In the time of inflation, the market has the purchasing power to spend on their consumption and living but in the time of deflation, the general price level goes downwards to that extent where the people do not have money to spend to fulfill their basic amenities. This is the reason; inflation is better as compared to deflation in the country (Walshe, 2014)

One of the best examples can be taken is of the Europe which has faced the high level of deflation in their country. The other country, which has faced the problem of deflation, is found in Japan from the year 1998 to 2003. The Bank of Japan was not able to help the economy to fight against the deflation in the country. The interest rate seemed too high in the country, which makes the deflation serious and has cost quite high for the country (The National Bureau of Economic Research, 2004).

Connection between recession and inflation

The leverage can be defined as the capacity of a country to have the ability to take the debt in the economy. The leverage is taken in the country affect the working and performance of Australia. The leverage dynamics is considered to be the real burden of debt on the economy (Woodward, Shulmeister, Bell, Haworth, Jacobsen and Zawadzki, 2014). This concept in the economy plays an important role in link between the financial and real development. It has been find out from the research that from the year 1985 to 2013, there are many adverse impacts had been seen in the economic growth due to the deflation in country. To gain the advantage in the market, the overall policy framework has been made in such a way, which can benefit the society and economy overall. The tax system is designed in such a way that helps to avoid overly rewarding leveraged speculation (Reserve Bank of Australia, 2018b). 

Conclusion

From the above discussion, it can be concluded that the analyzing the economic environment of the country is important to know. Reserve banks of Australia has been analysing the market and evaluate the policies and monetary tools that need to be used in the country so that the economic condition can be maintained. This economic maintenance includes the inflation-deflation and recession I the country. To bring the stability in economy thee three measures have to be controlled by the RBA in Australia. Other measures have been taken by the RBA to bring the stability in the economy, which leads to the growth and development of the country. The measures have been taken to reduce the effects the inflation, deflation, and recession in the country.

Johnson, H.G. (2014) World inflation, the developing countries, and “an integrated programme for commodities”. PSL Quarterly Review, 29(119).

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Pfitzner, J. (2014) Facilitating lung collapse during one lung ventilation can be rational. Anesthesia & Analgesia, 119(4), pp.1002-1003.

Prior, T., Giurco, D., Mudd, G., Mason, L. and Behrisch, J. (2012) Resource depletion, peak minerals and the implications for sustainable resource management. Global Environmental Change, 22(3), pp.577-587.

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Reserve Bank of Australia. (2015) Property Markets and Financial Stability: What We Know So Far [Online] Available from:  https://www.Reserve bank of Australia.gov.au/speeches/2015/sp-so-2015-09-08.html [Accessed on: 30^th August 2018]

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Walshe, K. (2014) Archaeological evidence for a sealer’s and wallaby hunter’s skinning site on Kangaroo Island, South Australia. The Journal of Island and Coastal Archaeology, 9(1), pp.130-143.

Woodward, C., Shulmeister, J., Bell, D., Haworth, R., Jacobsen, G. and Zawadzki, A. (2014) A Holocene record of climate and hydrological changes from Little Llangothlin Lagoon, south eastern Australia. The Holocene, 24(12), pp.1665-1674.

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