Our Role – The Reserve Bank of Australia

Australia's Central Bank

Commenced operations in 1960

  • Monetary policy
  • Market operations
  • Financial stability
  • Payments system
  • Government banking
  • Banknotes

Locations

  • Head Office in Sydney
  • State Offices in Adelaide, Brisbane, Melbourne and Perth
  • Branch in Canberra
  • Overseas offices in Beijing, London and New York

Monetary Policy

Our objectives

  • Stability of the currency
  • Full employment
  • Economic prosperity and welfare of the people of Australia

Inflation target

  • Keep inflation at 2–3 per cent, on average, over the medium term

Reserve Bank Board

  • Governor, Deputy Governor, Treasury Secretary and six external members
  • Monthly meeting includes a decision about setting the cash rate

The RBA adjusts the cash rate to try and keep the growth of total spending in line with potential output thereby ensuring that inflation is low and stable.

Amount of goods and services over time
Graph 1: Amount of goods and services over time

Adjusting the cash rate affects spending and inflation through several channels, such as:

Cash rate adjustment effects
Graph 2: Cash rate adjustment effects

More information about Monetary Policy.

Market Operations

  • To implement monetary policy, the RBA sets the cash rate
  • Banks borrow or lend from each other overnight at the cash rate
  • Open market operations keep the cash rate at target each day

The RBA keeps the cash rate at target by setting the supply of funds in exchange settlement accounts so that it is consistent with demand.

Raises account balances

  • RBA buys government bonds
  • Government makes outlays
  • Banks return banknotes

Lowers account balances

  • RBA sells government bonds
  • Government receives revenue
  • RBA issues banknotes
Exchange settlement accounts
Graph 3: Exchange settlement accounts

More information about Market Operations.

Foreign Exchange Reserves

  • The RBA holds foreign exchange reserves to support monetary policy and Government banking
  • Income earned on reserves is paid over time to the Australian Government
  • The RBA only intervenes in foreign exchange markets if:
    • disorderly market conditions
    • clear overshooting (large movement not supported by fundamentals)
  • The RBA does not target a particular level of the exchange rate

Financial Stability

  • Smooth flow of funds between savers and investors supports economic growth
  • Safe and robust financial market infrastructure
  • Coordinate with financial regulators
  • Crisis management capability, including liquidity support
  • The RBA monitors financial system health, published in the Financial Stability Review

More information about Financial Stability.

Payments System

  • Allows consumers and businesses to transfer funds to each other

Payments System Board

  • Promotes efficiency and competition in means of payment, including credit and debit cards
  • Oversees key financial market infrastructure to promote stability in the payments system

Reserve Bank Information and Transfer System (RITS)

  • The RBA runs Australia's real-time gross settlement system

RBA at the core, settling all electronic transactions between banks securely.

Payments Sytstem
Graph 4: Payments Sytstem

More information about Payments System.

Government Banking

  • Banker to the Australian Government, maintaining its core cash accounts
  • Facilitate government payments to households and businesses, including on behalf of:
    • Centrelink
    • Medicare
    • Australian Taxation Office

More information about Government Banking.

Banknotes

  • The RBA manages Australia's banknotes, including production, issue and distribution
  • Aim to maintain Australians' confidence in banknotes as a payment method
  • Printed on polymer substrate with hard-to-counterfeit security features
  • Meet the demand of households and businesses for banknotes
  • Maintain high quality by withdrawing and replacing damaged notes

More information about Banknotes.