Monetary policy   Goals of monetary policy   RBA Charter   Role of underlying inflation   Implementing monetary policy   Tightening of MP   Loosening of MP   How other rates change   Pre-emptive decisions   'Open mouth operations' Exchange rate intervention  Monetary policy stance   Expansionary policy  Monetary policy neutrality    Restrictive MP   Transmission mechanisms   MP and economic goals   low inflation Growth/jobs  MP strengths and weaknesses

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 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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Monetary policy loosening

A loosening of monetary policy involves the RBA announcing a lower target cash rate at one of its monthly Board meetings.  For example, if the RBA wants to reduce the target cash rate from 3.00% to 2.75% it must intervene in the market via open market operations. It purchases securities and increases liquidity, to ensure that actual cash rate falls towards the new target that has been set.  It will then ensure that at the start of each day thereafter, the actual cash rate remains as close as possible to the new lower target cash rate.  

This s depicted by the use of D/S diagrams below:

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