Reserve Bank Of Australia Essay

Introduction

Like central banks in most industrialized countries, the Reserve Bank of Australia takes responsibilities for formulating and implementing the monetary policy by using a short-term interest rate as its operating instrument. To set the monetary policy, the RBA announces a target level for the cash rate, which is determined by the Board of RBA at its monthly meeting (RBA, 2003). As a member of the Board of RBA, a recommendation is raised that the RBA should decrease the level of cash rate by 25 basis point from 2.25% to 2% in May 2015. In this article, aiming to achieve three basic objectives of monetary policy, it will be discussed from three major aspects: iron ore price, Australian dollar and Sydney property market.

Argument

In time, this situation let many mineral companies, like BHP Billiton, Rio Tinto, to expand the investment and production in Australia rapidly (RBA, 2015). In 2013, more than 45 percent of global iron ore exports came from Australia, as shown in Figure 1-2, which signifies that Australia was the country exports the largest amount of iron ore in the world (Statista, 2014). However, an unexpected slowing growth of demand from China caused Australia’s over-production a significant problem because of some measures taken by Chinese government. One of them was China set its annual growth target downward to 7 percent as its new economic growth model to slow down the high-speed pace of development and to focus on quality of citizen’s life with less pollution (Worldbank, 2015). Another reason was that Chinese government announced that it would reduce the resource tax on iron ore by 40 percent to protect Chinese domestic mineral industry and to support the economy, (Validakis, 2015). So that China would rely more on its own iron ore supply rather than importing from Australia, which would impact Australian iron ore industry more