Australia

Maki Galang
Olivia Osmundson
Luis Chan
 Overview

What were the effects of the early 1990s recession in Australia?

What are the objectives of Australia’s monetary policy? How does the Reserve Bank of Australia plan
to maintain these objectives?

What inflation rate does the Reserve Bank of Australia aim for? How does it plan to reach its inflation
target?

What is Australia’s GDP and how has it progressed? How does their GDP compare to other countries?

What are the employment and unemployment rates, and how do they compare to other countries?

How is Australia affected by trade in other countries?

Early 1990s Recession in Australia

● The recession in the late 80s and early 90s hit most of the world,
but caused Australia to have its worst recession since the Great
Depression
● Much of Australia’s monetary policy was based off of a response
to this crash
● They had overheated their economy and the Governor of the
RBA, Ian Macfarlane, said that the recession was “inevitable”
90s recession continued

● Still debated whether it was from poor policy or just fallout from
the rest of the international slowdown
● They quickly pulled themselves out of the recession and have
stayed out of recession ever since
● Have a nearly 25-year growth streak (~100 consecutive quarters
of growth)
 Objectives of Australia’s Monetary Policy

● Stability of the currency in Australia

● Maintenance for full employment in Australia

● The economic prosperity and welfare of the people of Australia

How the Reserve Bank of
Australia Plans to
Achieve/Maintain These
Objectives
 Inflation Target

● Consumer price inflation must

be kept between 2-3% on
average.
● Goal: maintain low and stable
inflation to reduce uncertainty
● “Anchors” private-sector
inflation expectations
 Inflation Rate Decisions 2019

● The Reserve Bank of Australia uses the cash rate to bring inflation back
on target.
● Cash/bank rate: interest rate banks charge each other on short term (or
overnight) loans
● RBA has been lowering cash rates consistently since 1991, and has kept
it at 1.50% since August 2016.
● Lowered it to 1.25% in June 2019 to continue stimulating the economy
 Smoothing the Business Cycle

● The Reserve Bank of Australia can increase and decrease interest

rates depending on the speed of economic growth.

● Supports long term economic growth

 Management of Trade Offs

● Trade-off between smoothing the business cycle (in particular economic

growth and unemployment) in the short run and achieving its inflation

target.

● Trade-off between objectives could also occur if an easing (or tightening) of

monetary policy was judged to adversely affect the Reserve Bank's broader

responsibilities.
 Financial Stability

● A stable financial system helps money flow given any situation.

● The Reserve Bank of Australia monitors risks to the financial system.

● The framework of low and stable inflation promotes an environment

conducive to financial stability.

 Transparency and Accountability

● Goal: maintain public’s trust and shape inflation expectations

● Explained publicly through several channels to ensure accountability

(include announcing to the public and publishing analysis and commentary)

 Relationship with the Government

● This monetary policy is set ONLY by the Reserve Bank of Australia.

● Helps prevent manipulation of monetary policy for political purposes

● Helps achieve more long term goals

Implementation of
Monetary Policy
The Board Process
Implementation Process

- The Reserve Bank keeps the cash rate as close to target as

possible through open market operations (typically conducted as
auctions)
- The reserve bank helps banks manage cash under terms where
lending and deposit rates form a corridor of 0.25 percentage
points above and below the cash rate target. The corridor helps
keep the cash rate close to target.
GDP Growth
Australia GDP Growth
Debt / GDP
Australia Debt/GDP
External Positions
- As of May 2019, Australia's trade balance was $5,745 million
External Positions

- Australia recorded a Government Budget deficit equal to 0.6

percent of the country's GDP in 2018.
Exchange Rate

1 AUD = 0.70 USD 1 AUD = 0.62 EURO

Gini Coefficient and
Lorenz Curve
Australia Gini Index

- top 20% of households

earned approximately 43%
of total household income
- the bottom 20%of
households earned about
8% of total income.
- in 2009/10 the Gini
coefficient for disposable
income (0.30) was lower
than that of gross income
(0.34).
Employment and
Unemployment
Demographics
Demographics
Trade
How Australia will be affected by the
US-China trade war

● Lots of speculation- either it will be really good or really bad for

them
● Australia exports a lot of agricultural products and waste
materials to China. As US exports to China decrease, Australian
exports could increase
● Or: The US-C trade war could cut 60,000 Australian jobs and
cause wage cuts because China will be importing less globally
Conclusion- Yes, buy the bonds!

● Despite the uncertainty of the trade war, Australia has very safe
bonds
● Historically, they have very responsible and transparent
monetary policy and have shown that they can bounce back from
sudden drops
● Very low Debt/GDP
● Growing economy and net exporters
● Stable inflation rate
Sources
- Reserve Bank Of Australia. (n.d.). What is monetary policy?. Retrieved on July 16, 2019, from
https://www.rba.gov.au/education/resources/explainers/what-is-monetary-policy.htm

- The Reserve Bank of Australia. (n.d). The inflation target. Retrieved on July 16, 2019, from https://www.rba.gov.au/education/resources/in-a-nutshell/pdf/inflation-target.pdf

- The Reserve Bank of Australia. (n.d). Monetary policy implementation in Australia. Retrieved on July 16, 2019, from
https://www.rba.gov.au/education/resources/in-a-nutshell/pdf/monetary-policy-implementation.pdf

- The Reserve Bank of Australia. (n.d). Monetary policy in Australia. Retrieved on July 16, 2019, from
https://www.rba.gov.au/education/resources/in-a-nutshell/pdf/monetary-policy-in-australia.pdf

- The Reserve Bank of Australia. (2014). The distribution of household spending in Australia. Retrieved on July 16, 2019, from
https://www.rba.gov.au/publications/bulletin/2014/mar/2.html

- Australia government debt to GDP. (n.d.). Retrieved on July 16, 2019, from https://tradingeconomics.com/australia/government-debt-to-gdp

- Australian Government Department of Foreign Affairs and Trade. (n.d.). Trade statatistics.
https://dfat.gov.au/trade/resources/trade-statistics/Pages/australias-trade-balance.aspx

- Trading Economics. (N.d.). Retrieved on July 16, 2019, from https://tradingeconomics.com/australia/government-budget

- Munro, K. (January 6, 2018). Australia’s trade explained: Top imports, exports and trading partners. Retrieved on July 16, 2019, from
https://www.sbs.com.au/news/australia-s-trade-explained-top-imports-exports-and-trading-partners

- Economy suffers worst fall since 1991 - ABC News (Australian Broadcasting Corporation). (2011). Retrieved on July 16, 2019, from
https://mobile.abc.net.au/news/2011-06-01/economy-suffers-worst-fall-since-1991/2740562