Teacher and Student Guide
Our Role
The Reserve Bank of Australia
Australia’s Central Bank
Commenced operations in 1960
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Monetary policy
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Market operations
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Financial stability
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Payments system
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Government banking
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Banknotes
Monetary Policy
Our objectives
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Stability of the currency
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Full employment
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Economic prosperity and welfare
of the people of Australia
Inflation target
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Keep inflation at 23 per cent,
on average, over the medium term
Reserve Bank Board
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Governor, Deputy Governor, Treasury Secretary and six external members
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Monthly meeting includes a decision about setting the cash rate
Monetary Policy
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The RBA adjusts the cash rate to try and keep the growth of total spending
in line with potential output thereby ensuring that inflation is low and stable
Amount of
goods and
services
Total spending
Potential output
Falling
unemployment,
rising inflation
Rising
unemployment,
falling inflation
Time
Monetary Policy
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Adjusting the cash rate affects spending and inflation through
several channels, such as:
Interest rates
Spending
Cash
rate
Inflation
Exchange rate
Import prices
Expectations
Market Operations
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To implement monetary policy, the
RBA sets the cash rate
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Banks borrow or lend from each
other overnight at the cash rate
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Open market operations keep the
cash rate at target each day
Market Operations
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The RBA keeps the cash rate at target by setting the supply of funds
in exchange settlement accounts so that it is consistent with demand
Raises account balances
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•
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RBA
RBA buys government bonds
Government makes outlays
Banks return banknotes
Exchange
Settlement
Accounts
Public
Banks
Lowers account balances
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•
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Loans
RBA sells government bonds
Government receives revenue
RBA issues banknotes
Deposits
Foreign Exchange Reserves
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The RBA holds foreign exchange
reserves to support monetary policy
and Government banking
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Income earned on reserves is paid over
time to the Australian Government
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The RBA only intervenes in foreign
exchange markets if:
 disorderly market conditions
 clear overshooting (large movement
not supported by fundamentals)
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The RBA does not target a particular
level of the exchange rate
Financial Stability
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Smooth flow of funds between savers
and investors supports economic growth
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Safe and robust financial market
infrastructure
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Coordinate with financial regulators
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Crisis management capability,
including liquidity support
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The RBA monitors financial system health,
published in Financial Stability Review
Payments System
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Allows consumers and businesses
to transfer funds to each other
Payments System Board
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Promotes efficiency and competition
in means of payment, including
credit and debit cards
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Oversees key financial market
infrastructure to promote stability in the payments system
Reserve Bank Information and Transfer System (RITS)
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The RBA runs Australia’s real-time gross settlement system
Payments System
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RBA at the core, settling all electronic transactions between banks securely
Debt
securities
International
& high-value
payments
RBA
Transfers
between
banks
(RITS)
Cards, direct
entry, cheques
Equity
securities
Government Banking
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Banker to the Australian
Government, maintaining its
core cash accounts
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Facilitate government payments
to households and businesses,
including on behalf of:

Centrelink

Medicare

Australian Taxation Office
Banknotes
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The RBA manages Australia’s banknotes, including
production, issue and distribution
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Aim to maintain Australians’ confidence
in banknotes as a payment method
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Printed on polymer substrate with
hard-to-counterfeit security features
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Meet the demand of households and businesses
for banknotes
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Maintain high quality by withdrawing and replacing
damaged notes
Australia’s Central Bank
Our locations
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Head Office in Sydney
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State Offices in Adelaide, Brisbane,
Melbourne and Perth
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Branch in Canberra
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Overseas offices in Beijing, London
and New York
For more information
Visit the Reserve Bank website: rba.gov.au
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Monetary policy
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Market operations
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Financial stability
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Payments system
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Government banking
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Banknotes