Our Role

The Reserve Bank of Australia

Teacher and Student Guide

Australia’s Central Bank

Commenced operations in 1960

•Monetary policy

•Market operations

•Financial stability

•Payments system

•Government banking

•Banknotes

Monetary PolicyOur objectives

•Stability of the currency

•Full employment

•Economic prosperity and welfare of the people of Australia

Inflation target

•Keep inflation at 23 per cent, on average, over the medium term

Reserve Bank Board

•Governor, Deputy Governor, Treasury Secretary and six external members

•Monthly meeting includes a decision about setting the cash rate

Monetary Policy• 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

Time

Potential outputTotal spending

Falling unemployment,rising inflation

Rising unemployment,falling inflation

Cash rate

Exchange rateImport prices

Expectations

Interest rates

Spending

Inflation

Monetary Policy• Adjusting the cash rate affects spending and inflation

through several channels, such as:

Market Operations

• To implement monetary policy, the RBA sets the cash rate

• Banks borrow or lend from each other overnight at the cash rate

• Open market operations keep the cash rate at target each day

Market Operations• 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

Public

Loans

Deposits

Exchange Settlement Accounts

RBA Banks

Raises account balances•RBA buys government bonds•Government makes outlays•Banks return banknotes

Lowers account balances•RBA sells government bonds•Government receives revenue•RBA issues banknotes

Foreign Exchange Reserves

• The RBA holds foreign exchange reserves to support monetary policy and Government banking

• Income earned on reserves is paid over time to the Australian Government

• The RBA only intervenes in foreign exchange markets if:

disorderly market conditions

clear overshooting (large movement not supported by fundamentals)

• The RBA does not target a particular level of the exchange rate

Financial Stability

• Smooth flow of funds between savers and investors supports economic growth

• Safe and robust financial market infrastructure

• Coordinate with financial regulators

• Crisis management capability, including liquidity support

• The RBA monitors financial system health, published in Financial Stability Review

Payments System

• Allows consumers and businesses to transfer funds to each other

Payments System Board

• Promotes efficiency and competition in means of payment, including credit and debit cards

• Oversees key financial market infrastructure to promote stability in the payments system

Reserve Bank Information and Transfer System (RITS)

• The RBA runs Australia’s real-time gross settlement system

Payments System• RBA at the core, settling all electronic transactions between banks

securely

RBA(RITS)

International & high-value

payments

Debt securities

Transfers between

banks

Cards, direct entry, cheques

Equity securities

Government Banking

• Banker to the Australian Government, maintaining its core cash accounts

• Facilitate government payments to households and businesses, including on behalf of:

Centrelink

Medicare

Australian Taxation Office

Banknotes

• The RBA manages Australia’s banknotes, including production, issue and distribution

• Aim to maintain Australians’ confidence in banknotes as a payment method

• Printed on polymer substrate with hard-to-counterfeit security features

• Meet the demand of households and businesses for banknotes

• Maintain high quality by withdrawing and replacing damaged notes

Australia’s Central Bank

Our locations

•Head Office in Sydney

•State Offices in Adelaide, Brisbane, Melbourne and Perth

•Branch in Canberra

•Overseas offices in Beijing, London and New York

For more information

Visit the Reserve Bank website: rba.gov.au

•Monetary policy

•Market operations

•Financial stability

•Payments system

•Government banking

•Banknotes