min read
· Posted on
February 21, 2024

Beyond the cash rate: The RBA explained

We all know the RBA keeps raising the damn interest rate. But what else do they do?

What's the key learning?

  • Understanding what the RBA is
  • Understanding monetary policies
  • Understanding how the RBA sets monetary policies

We’re seeing the RBA in the news non-stop over the last few months. We know they set the cash rate each month, which *somehow* tackles inflation. 

But what actually is the RBA and what else do they do?

What is the RBA?

The RBA or Reserve Bank or Australia is a central bank. It’s not like a regular bank, it’s a national authority that’s focused on keeping the country’s economy and financial system stable. 

Like most central banks, the RBA is an independent baddie. It’s not owned by the government and is politically neutral.

The RBA has nine members and unlike pollies, there’s no limit on how many terms they can serve. 

The current Governor and Chair of the RBA is Phillip Lowe, ie this guy. 

What do they do?

The RBA looks after the economy in a bunch of different ways that are called *monetary policies*.

If you’ve got the business world over here, and the government over there, the RBA sits somewhere in the middle doing it’s thang to try and keep prices stable, ensure that unemployment doesn’t fly off the handle, and general financial stability.  

The RBA can increase or decrease the amount of money in supply, as well as control interest rates to keep inflation and unemployment in check. They also do a whole bunch of other things like print money when needed, manage foreign exchange, and advise the government on financial policy. 

Unlike Cardi B’s splashy money moves, the RBA tends to be more considered before using one of the many tools in its toolbag. 

When do they do stuff?

On the first Tuesday of each month (except January) the RBA besties get together to look at the economy and set monetary policy, usually by setting the target cash rate (more on that below). 

They announce the target cash rate at 2:30pm each month, and publish new research everyday at 11.30am bar public holidays (bankers gotta play too). 

Why does the RBA do this stuff?

In a nutshell…so that the country doesn’t become bankrupt.

How do they do stuff?

The main way RBA implements its monetary policies is by setting the cash rate target.

The cash rate is the interest rate that the RBA charges commercial banks (the banks we have savings accounts in) and they increase or decrease that rate depending on the needs of the economy.

If the RBA ups the cash rate, like it’s been doing since May 2022, then banks up their interest rates to customers on things like home loans (and hopefully savings accounts too!)

This is how the RBA helps control inflation and unemployment and keeps the stability in the economy.

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