In the context of monetary policy, RBA has announced multiple increases in the cash rate in the last 12 months ranging from 0.1% in April 2022 to 3.85% in May 2023 as shown by the RBA statements (see the links provided below).

• RBA Media Statements

https://www.rba.gov.au/media-releases/2023/

• We're dealing with a particularly nasty form of inflation, and a pause in rate hikes is unlikely to mean the end of hip pocket pain

https://www.abc.net.au/news/2023-04-01/rba-interest-rate-hike-pause-sticky-inflation/102169734

• Interest rate rises: is there a less painful way to curb inflation?

https://www.theguardian.com/australia-news/2023/mar/07/interest-rate-rises-is-there-a-less-painful-way-for-the-rba-to-curb-inflation

Describe the type of policy RBA has adopted in the last 12 months in Australia and explain how the transmission mechanism (as discussed in Module L8) of monetary policy works when RBA takes such decisions of increasing the interest rates.

What could be the possible implications for the Australian economy if RBA continues with such rate rise in the coming months? Consider the impacts on factors such as consumption, investment, economic growth and inflation in your answer. In your answer, also comment on why this type of policy move can be painful for the consumers and investors in the economy.

Answer rating: 100% (QA)

In the last 12 months the Reserve Bank of Australia RBA has adopted a contractionary monetary policy by increasing the cash rate multiple times This policy move is aimed at curbing inflationary pressu... View the full answer