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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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Restrictive monetary policy


An restrictive or  contractionary monetary policy setting will exist when the level of the cash rate is high enough to be exerting a dampening effect on economic activity.  Currently, monetary policy is considered to be restrictive if the target cash rate is above 3.5%.  A restrictive monetary policy is usually associated with a policy tightening where it is expected that the higher cash rate (or higher interest rates) will work to decrease the level of economic activity in an effort to contain inflationary pressure.  It is also possible for monetary policy to become relatively more restrictive, even without a tightening of policy.  This can occur if economic growth is low, or declining rapidly, and the RBA does not change the cash rate.  This scenario is commonly referred to as a less accommodative stance of monetary policy.  


It is also possible for monetary policy to remain restrictive even when policy is loosened.  For example, between March and October 2008, the RBA loosened policy by reducing the cash rate from a restrictive 7.25% to a less restrictive 6.00%, but the policy stance remained a restrictive one (until the RBA eventually reduce the cash rate to a low of 3.00% in early 2009).


As at early June 2011, monetary policy was considered to be mildly restrictive, with a target cash rate at 4.75%.  However, with several monetary policy loosenings since then, the cash rate was sitting at an expansionary 2% by 2015.   


Visit the RBA’s website at  www.rba.gov.au  to determine the current level of the target cash rate.




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