The Reserve Bank of Australia's (RBA's) main responsibility is monetary policy. Policy decisions are made by the Reserve Bank Board with the objective of achieving low and stable inflation over the medium term. Other responsibilities include maintaining financial system stability, while at the same time promoting the safety and efficiency of the payments system. The RBA regards appropriate monetary policy as a major factor contributing to the Australian dollar's stability, which in turn leads to full employment and the economic prosperity for Australia. The Bank is accountable to the Australian Parliament and provides an annual report to them. The Reserve Bank Act 1959 provides the legislative foundation for the RBA's responsibilities and powers.

 

The RBA is unique among the central banks — it has two boards with complementary responsibilities. The Reserve Bank Board is responsible for monetary policy and overall financial system stability. The Payments System Board has specific responsibility for the safety and efficiency of the payments system.

 

RBA's assets include Australia's holdings of gold and foreign exchange. The Bank is wholly owned by the Australian government, to which its profits accrue. The RBA's headquarters is in Sydney, with regional offices in Adelaide, Brisbane, Canberra, Melbourne, Perth, London, and New York. Note Printing Australia Limited (NPA) is a wholly owned subsidiary of the Bank and manufactures Australia's currency notes and a range of other security products for domestic and overseas markets.

 

 

In 1993, then-Governor Bernie Fraser outlined price stability as a policy objective for the first time. He defined it as a rate of inflation that averaged 2 percent to 3 percent over a period of years. In August 1996, then-Governor-designate, Ian Macfarlane and Australia's treasurer jointly issued a Statement on the Conduct of Monetary Policy. It essentially reiterated and clarified the respective roles and responsibilities of the RBA and the Australian government in relation to monetary policy and provided formal government endorsement of the RBA's inflation objective, which had been informally in place for some time.

 

The RBA meets the first week of each month with the exception of January when it takes its summer break. At the conclusion of their December 2007 meeting, the RBA announced several changes to its communications policy. Previously, a statement was released only if a policy change was made. Now a statement is released at the conclusion of every meeting. Another change concerned the timing of the policy announcement. Rather than waiting until the next day, the announcement occurs immediately after the conclusion of the meeting. In addition, minutes to their meetings are now released two weeks after the meeting.

 

The Bank's interest rate reached 7.25 percent in March 2008 as the RBA escalated its fight against inflation and despite the worldwide credit crunch. But the RBA began to ease rates in September. In October 2008 the RBA surprised with a full percentage rate cut to 6 percent. But the rate declines did not stop there as the RBA attempted to stem the economy's decline. The RBA dropped rates by 75 basis points in November and followed up with a 100 basis point cut in December and February 2009 to 3.25 percent. The Bank cut another 25 basis points in March. The RBA cut rates by a total of 425 basis points. In October 2009, the RBA became the first of the major industrial country central banks to reverse direction and increase its policy making rate by 25 basis points to 3.25 percent. The Bank increased rates a total of seven times. The latest increase occurred in November 2010.

 

However, with global growth slowing, the RBA lowered its key interest rate at both their November and December 2011 meetings. In April 2012 the Bank cut the key rate by 50 basis points followed by a 25 basis points to 3.5 percent in May. The RBA cut again in October and in December. The key rate was 3.0 percent for five consecutive months until May 2013 when the RBA reduced it by 25 basis points to 2.75 percent. It remained at 2.75 percent at its June and July meetings. In August, the RBA once again lowered its key interest rate — this time to 2.5 percent. Since then, the RBA has maintained the 2.5 percent interest rate indicating that it would remain there for some time to come.

 

Things changed however at the RBA's February 2015 meeting. At that time, the RBA lowered its cash rate by 25 basis points to a new record low of 2.25 percent. The RBA said that while the cash rate was stable, the Board has taken time to assess the effects of the substantial easing in policy that had already been put in place and monitored developments in Australia and abroad. However, taking into account the flow of recent information and updated forecasts, the Board judged "that, on balance, a further reduction in the cash rate was appropriate. This action is expected to add some further support to demand, so as to foster sustainable growth and inflation outcomes consistent with the target."

 

The Board noted that "the Australian dollar has declined noticeably against a rising U.S. dollar over recent months, though less so against a basket of currencies. It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy."

 

In both March and April, to the dismay of the financial markets, the RBA Board chose to leave its policy rate at 2.25 percent but left the door open to interest rate cuts going forward. However, it once again lowered rates at its May meeting by 25 basis points to 2.0 percent. It left its key rate at 2.0 percent in June and in July.