Financial Markets and Institutions. The Reserve Bank of Australia Monetary Policy
1)Please be kind to read below my personal requirement for the essay :
- This essay must be NO less than 2600 words,
-Please write the essay in a very simple and direct way , so when I will receive it I can understand its content , and if needed I can do some edit. If the assignment is too technical or complex, I cannot understand it and I cannot edit it, as I am not an expert in the field.
-Please make the assignment also argumentative , do not just write symbols or calculation, but please explain with words and try to argument end to explain the calculations that have been done, so I can also understand what arethese calculations for and their meaning.
-Please do not use High Technical language otherwise that can make someone suspicious, but please use simple language to describe the topics.
-Please provide my assessment in WORD document and NOT IN PDF.
-Please use reliable references which I can put into the essay and for which I will not be marked down. You can use also a company website, or a reliable and famous financial website as reference, that will make my life easier when I ll need to edit it. ( If you'll put academic references from book, and you do not write then in the way my College wants , then I ll have to edit it, but it will be hard to edit it as I ll probably will not have all information to reference the way they want), so please use company website or financial official website, so I can easily access to them and check them.
-Please write the assignment in the following structure and in the following order : 1) Introduction 2)Body 3) Conclusion 4) References List
- Please be aware that my university portal uses Turnitin for detecting plagiarism so please be very careful when writing things which comes from other sources , as Turnitin will immediately detect them and if it will find some similarity they will make me fail the assignment immediately. That's why I would like the assignment to be quite personal and argumentative.
- Please always use third person for the assignment and never write in the first person.
2 ) Now that you have my personal requirements for the assignment , I will write below the assessment question :
-Background
Read the article ‘RBA joins race to the bottom’ commenting on the dangers of the zero- interest trap and the consequential ineffectiveness of some central banks. Of concern is that ever-more intensive monetary policy stimulus cannot resurrect inflation in affected economies. In turn, this goes to the concern of how central banks operate and the flow on effect of ‘exacerbating an ultra-low yield environment that crunched investors and shattered pension retirement plans the world over’ (Greber & Shapiro 2016). However, the issue remains how central banks best engage monetary policy in low inflationary environments and the flow on effects to asset values (bonds, derivative, share, options, futures and forwards) and investment yields in the financial market.
The article that forms the basis for this assignment is:
Greber, J & Shapiro, J 2016, ‘RBA joins race to the bottom’, Australian Financial Review, 7–8 May.
-Report :
You are required to select a central bank responsible for monetary policy in a country of your choice. Click on the link for a list of central banks: http://www(dot)bis(dot)org/cbanks.htm
For this assignment, you are required to prepare a report. Your report must address following:
1)Discuss the role of a central bank in a country, particularly in implementing monetary policy. Comment on any regulatory requirements imposed on the central bank in performing their responsibilities.
2)Comment on the current economic environment (inflation and interest rates) of your selected country, monetary policy employed by the central bank, and effects of those monetary policies on financial markets including asset values and yields.
3)In the article ‘RBA joins race to the bottom’ (Greber & Shapiro 2016) the Reserve Bank of Australia Governor (RBA) refers to taking a medium - term view to achieve the CPI inflation target, importance of asset prices and that leveraged dynamics matter. Outline and discuss why the RBA Governor thinks leverage matters. Explain the relevance of this statement to central bank practice in your country?
4)Identify and discuss how Authorised Deposit Institutions (ADIs) deal with credit, liquidity, operating and interest rate risks in the selected country. Comment on how Basel accord ii or iii helps deal with capital and liquidity risks in your selected country.
The Reserve Bank of Australia Monetary Policy
Name:
Institutional Affiliation:
The Reserve Bank of Australia Monetary Policy
Introduction
Over about the past three decades, Australia’s monetary policy structure has changed considerably, with the most substantial transformation being the embracing of an inflation target at the beginning of the 1990’s according to Fontaine (2014). Moreover, changes have also been there at the operational level. Most of these adjustments were a part of a transformative process after the deregulation of money markets in the first half of the 1980s; however, an essential modification happened in January 1990 the time the Reserve Bank of Australia started announcing changes to the position of financial policy, as mirrored in the level of overnight rates. Before that, it functioned in the market and left its participants to come up with their conclusions regarding the monetary policy. One outcome of the move to the announcement was that the interest rate adjustments are currently applied as distinct steps.
The paper deliberates on some of the reasons behind the changes in the operations processes and the impact they have had on the financial markets as well as the transmission mechanisms. It is structured in five sections. The first section looks at the role of the Reserve Bank of Australia (RBA), mainly in the implementation of monetary policy and supervisory requirements imposed on RBA in executing its responsibilities. Section 2 is concerned with the existing economic environment in the country regarding interest rates and inflation, the monetary policy embraced by the bank in accruing out its duties. The third section delves on the reasons the RBA Governor, Glenn Stevens thinks of leveraging matters. The fourth part discusses how Authorized Deposit Institutions deal with liquidity, credit as well as operating and interest rate risks in Australia. Finally, the fifth part gives some concluding comments on the overall issue of financial summary in the country.
The role of the Reserve Bank of Australia in implementing monetary policy
A statute of the country’s central bank recognizes the RBA. Under its empowering law, the Reserve Bank Act 1959, the institution’s duties includes recognizing and executing monetary, endorsing economic stability, issuing bank notes, offering banking services to the Australian government, supervision of the country’s foreign reserves, determining payment system strategy, and conducting high-value payment system ("Functions and Objectives | Reserve Bank of Australia Annual Report – 2014 | RBA", 2014).
Its responsibility for the Australia’s fiscal policy is set forth in section 10 (2) of the Reserve bank Act that states the obligation of the RBA board, within the retractions of its authority, to make sure that the financial, as well as the banking policy of the institution, is directed to the utmost benefit of the Australian citizens. Moreover, it continues to express that the authorities of the Bank are executed in a way as, in the view of the Reserve bank board, is best involved in:
• Maintaining the stability of Australian currency
• Ensuring full employment in the country; and
• Increasing financial prosperity as well as the welfare of the Australians ("Functions and Objectives | Reserve Bank of Australia Annual Report – 2014 | RBA", 2014).
Strategies in pursuit of the goals have established practical manifestation in a flexible, middle-term inflation aim that has shaped the basis of the country’s fiscal policy structure since the beginning of the 1990s. The policy intention is to maintain consumer price inflation between 2-3%, on the mean, over the business cycle. Financial policy intends to accomplish this over the medium-term as a critical prerequisite for the preferment of viable financial growth and employment. The 6th “Statement on the Conduct of Monetary Policy,” approved by the Governor in 2013 after the election of the Coalition Government, archives the mutual understanding of the Reserve bank of Australia and the government on the main elements of the monetary policy structure ("Functions and Objectives | Reserve Bank of Australia Annual Report – 2014 | RBA", 2014).
The RBA conducts operations in financial markets, runs the country’s primary high-value payment systems and performs an evaluation of markets as well as organizational developments. Moreover, it is also involved in discussions with the government as well as other local regulators concerning regulatory strategy initiatives, mainly via the Council of Financial Regulators (CFR). The body is chaired by the Governor of the RBA and brings together the RBA, the Australian Securities and Investments Commission, the Australian Prudential Regulatory Authority, and the Treasury to contribute to the success of stability and regulation of the monetary system.
Under the Corporations Act 2001, the Bank, supervised by the Payment System Board is responsible for the determination of the economic stability principles for licensed clearing as well as settlement facilities and evaluating facilities’ observation of such values. The Corporations Act institutes a system for the guideline of over-the-counter derivative markets that does a consultative role for the RBA on a variety of issues ("Economic Outlook | Statement on Monetary Policy – February 2018 | RBA", 2018).
These varied functions help the RBA in endorsing the general stability of the monetary system. The RBA does not have the duty for the effective regulation of financial organizations; however, in a situation of economic system disruption, RBA and other appropriate agencies work together to alleviate the peril of systemic consequences (Atkin & La Cava, 2017).
The RBA also:
a. Plans, generates, and issues Australia’s banknotes, with the aim of making sure public assurance in the banknotes as an efficient payment mechanism as well as a safe store of wealth
b. Offers particular banking services to the government as well as official international organizations, including payments and collections and general account conservation and recording
c. Holds and supervises the country’s foreign currency reserves, and works in foreign exchange markets to cater for the foreign exchange requirements of the customers as well as helping with local liquidity management.
The RBA has a duty in making sure that stability, effectiveness, and attractiveness of the payment schemes exist via the Payments Systems Board that was founded in 1998. RBA’s authorities on the payment schemes are set off in various statutes that include the Corporations Act and (Regulation) Act 1998.
The current economic environment in Australia
The Australian economy entered its second quarter of 2018 on solid footing, reinforced by increasing business assurance and confidence easing consumer feelings. The information for the first quarter in 2018 illustrates that activity increased at a stable and widely constant pace after losing some momentum in Q4, 2017 because of the achievement of large mining projects. The retail sales kept on improving at a healthy pace in Q1, supported by steadfast labor market situations, passive inflation as well as optimistic consumer self-assurance ("Economic Outlook | Statement on Monetary Policy – February 2018 | RBA", 2018). Furthermore, non-mining private businesses also expanded at a healthy pace as observed by absolute business sureness. On the 1st of May, Fitch ratings confirmed the country’s credit rating at AAA with a steady outlook, proving Australia’s useful fiscal parameters, effective administration, and microeconomic steadiness. On May 8, the government presented the 2018/2019 budget. It included measures, for example, income tax reductions for the middle- and low-income earners that could boost retail sales.
In 2018, rising of the non-mining business and public infrastructure spending ought to support growth and development. Besides, resilient international demand, as well as augmented exports of natural gas, is anticipated to increase foreign sales. Nonetheless, the country’s substantial external debt exposes it to potential capital outflows, whereas high degrees of household obligation signify a risk to economic stability. The GDP is expected to increase 2.7 percent in the year, which is unaffected by April’s prediction, and 2.7 again in 2019.
On 2017 December, inflation information was in proportion to predictions in the November statement. Therefore, there is a slight variation to the outlook for incipient inflation despite a marginal growth to mirror the anticipation that extra size in the labor market will decrease a bit further to the previous forecast. The underlying inflation is predicted to rise to about 2% in 2019 and about 2.25% by June 2020 ("Economic Outlook | Statement on Monetary Policy – February 2018 | RBA", 2018).
Such a steady pi...