Question

2. Explain how Reserve Bank of Australia (RBA) retain control of interest rates. Explain which of the methods are more suitable in the current COVID-19 capital market.

Answer 1

Reserve Bank of Australia is the entity for management of monetary policy in Australia so it will be trying to retain the control of the interest rates because interest rate is one of the monetary policy tools which will be required by the Reserve Bank of Australia in order to control the monetary flow in the overall Australian markets.

Reserve Bank of Australia will be trying to control the monetary flow in the economy by use of interest rate and interest rate is increased or lowered according to the need of the economy because they will be trying to manage the stability in the economy so they will always try to adopt various kinds of monetary policy regime and flex the the interest rate accordingly in order to synchronise the interest rate with the demand and supply in the market so it will be taking absolute control of the interest rate in order to control the monetary flow.

Methods which are most suitable for current covid-19 capital market is related to lowering down the interest rates because lowering down of the interested will mean that stimulation of demand in the economy in order to increase the monetary flow, because the current situation is reflecting a situation of lower demand and expectation of impending recession so Central Bank will be lowering the interest rates in order to support the economy and stimulate the demand into the economy and hence Reserve Bank of India should be trying to lower the interested in order to support the economy and stimulate the demand so that they would be increasing the monetary supply to stabilize the economy.