GENERAL KNOWLEDGE

Detailed explanation-1: -The Reserve Bank sets the target ‘cash rate’, which is the market interest rate on overnight funds.

Detailed explanation-2: -The Reserve Bank is responsible for Australia’s monetary policy. Monetary policy involves setting the interest rate on overnight loans in the money market (’the cash rate’).

Detailed explanation-3: -The Reserve Bank Board sets the target for the cash rate in the Australian cash market – the market in which banks lend to and borrow money from each other overnight. Changes in the cash rate then flow through to other interest rates in the economy, influencing economic activity and ultimately inflation.

Detailed explanation-4: -The Reserve Bank purchased government bonds to: support a target for the interest rate on three-year bonds (the yield target); lower the yield on bonds with a term of longer than three years below where they would otherwise be; and support the smooth functioning of the bond market.