Rba (1 Viewer)

[NizDiz]

Hi guys, I've just forgotten some basic Economics, may u guys help me please. The RBA control the monetary policy, does that involve Interest rates? and, Do they affect macroeconomics or microeconomics?

Also, what is the cash rate, inflation rate and interest rate briefly?

All help greatly appreciated!! Thanks

 

[Audranda]

Monetary policy involves interest rates. Government securities are sold and bought to affect the interest rates (if excessively sold= hike in interest rates). Monetary policy is significant in order to regulate the economy- whether there is a recession (lower interest rates= stimulate spending), to an economic boom (can result in inflation).

Microeconomics refers to individuals and businesses (smaller-scale economics), whilst macroeconomics refers to the government/country, etc.

An interest rate is the percentage charged (from a particular sum of money) by the lender to the borrower for their assets.
An inflation rate refers to the percentage in which goods and services (their cost) are gradually increasing by.
The cash rate refers to the percentage/rate charged by the RBA to financial intermediaries and NBFIs (for the overnight money market).

 

[NizDiz]

thank u sooooooooo much

 

[Hoorayz1]

Monetary policy involves interest rates. Government securities are sold and bought to affect the interest rates (if excessively sold= hike in interest rates). Monetary policy is significant in order to regulate the economy- whether there is a recession (lower interest rates= stimulate spending), to an economic boom (can result in inflation).

Microeconomics refers to individuals and businesses (smaller-scale economics), whilst macroeconomics refers to the government/country, etc.

An interest rate is the percentage charged by the lender to the borrower for their assets.
An inflation rate refers to the percentage in which goods and services (their cost) are gradually increasing by.
The cash rate refers to the percentage/rate charged by financial intermediaries (e.g. banks) on loans.

Remember to note DMOs

 

[NizDiz]

DMOs, what are they again and what does it stand for? Sorry, I've forgotten a lot, if not everything

 

[BiasedBuffalo]

Domestic market operations - mainly how the RBA buys and sells gov't securities to influence the cash rate.

Selling securities reduces the about of money in bank's exchange settlement accounts, and the cash rate increases as a result of increased demand in the overnight money market.

Buying securities has the inverse effect.

 

[kiwi703]

Microeconomics refers to individuals and businesses (smaller-scale economics), whilst macroeconomics refers to the government/country, etc.

An interest rate is the percentage charged by the lender to the borrower for their assets.
An inflation rate refers to the percentage in which goods and services (their cost) are gradually increasing by.
The cash rate refers to the percentage/rate charged by financial intermediaries (e.g. banks) on loans.

The cash rate is the interest charged by the RBA to lend money to banks and NBFIs in the overnight money market, so they can top up their exchange settlement accounts. The cash rate has nothing to do with consumer or private loans!

And an interest rate is the percentage of a sum of money charged for its use.

 

[BiasedBuffalo]

Kiwi is right.

The cash rate does influence consumer loans, but not directly. Since banks pay more for overnight loans from the RBA when the cash rate rises, they raise their prices too - just like a business would raise their prices if their overheads increase.
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Most banks pass on increases/cuts to the cash rate to their customers, with the difference between the cash rate and their consumer loan rate essentially being their profit margin.

The RBA cannot dictate to banks what their interest rates should be, but it influences them extremely effectively.

 

[kiwi703]

^exactly right!

 

[NizDiz]

Thanks for all the help and knowledge!!!!, sorry for l8 reply, been really busy of l8, thanks again