The Cash Rate Is The Overnight Money Market Interest Rate...

The cash rate is the overnight money market interest rate implemented by the Reserve Bank of Australia. The Board of the Reserve Bank of Australia meet monthly to determine the cash rate for the following month, taking into account various economic conditions, both globally and domestically. Since August 2013, the cash rate in Australia has been at a record low, of 2.5 per cent (Reserve Bank of Australia, 2013). The three factors which will be considered in determining the cash rate for October 2014 are; the housing market â€Å"boom†, the falling value of the Australian dollar and iron ore prices trading at an all time low. Based on these three factors, on the 4th of October, the cash rate should be kept at the current rate of 2.5 per cent. With the latest inflation result showing inflation to be around the mid band target of the 2-3% target, no immediate cash rate decisions need to be made to control inflation. The cash rate is closely related to the monetary policy. As the inflation target helps the RBA achieve its three objectives of monetary policy, and the cash rate ultimately influences the level of inflation in the economy, the cash rate and monetary policy can be seen to be closely related. The three objectives of monetary policy are; maintaining price stability, full employment and economic prosperity and welfare of the Australian people (Reserve Bank of Australia, 2013). The objectives of monetary policy will also be covered in this essay and how the current willShow MoreRelatedThe Global Financial Crisis ( Gfc )1087 Words   |  5 Pagescredit ratings and the subsequent collapse of the US housing market and prominent investment bank Lehman Brothers which sent a wave of fear around global economies including Australia and resulted in the largest drop in global economic activity in the modern era. (W. McKibbin, A.Stoeckel, 2009, pg 1). 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