1. Based on the most recent announcement made by the RBA Governor (see the RBA Statement on the Monetary Policy Decision for May 2023 below), identify what type of monetary policy did the RBA implement in this announcement? Which part of the AD-AS model is this policy aiming to shift and in what direction? What does the RBA’s monetary policy decision tell us about which phase of the business cycle we are currently in, and which economic indicator the RBA is most concerned about? (3-4 sentences)2. In its announcement, the RBA Governor refers to “the importance of returning inflation to target.”As part of your Policy Brief, explain what is meant by the inflation target and how does an inflation target contribute to good economic management? Based on the news updates that we discussed in our lectures and tutorials throughout this course, what are some factors that are currently contributing to inflationary pressures in Australia and globally, and which part of the AD-AS model are these factors affecting? (2-3 sentences) Statement by Philip Lowe, Governor: MonetaryPolicy DecisionNumber 2023-10Date2 May 2023At its meeting today, the Board decided to increase the cash rate target by 25 basis points to3.85 per cent. It also increased the rate paid on Exchange Settlement balances by 25 basis pointsto 3.75 per cent.Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some timeyet before it is back in the target range. Given the importance of returning inflation to targetwithin a reasonable timeframe, the Board judged that a further increase in interest rates waswarranted today.The Board held interest rates steady last month to provide additional time to assess the state ofthe economy and the outlook. While the recent data showed a welcome decline in inflation, thecentral forecast remains that it takes a couple of years before inflation returns to the top of thetarget range; inflation is expected to be 4½ per cent in 2023 and 3 per cent in mid-2025. Goodsprice inflation is clearly slowing due to a better balance of supply and demand following theresolution of the pandemic disruptions. But services price inflation is still very high and broadlybased and the experience overseas points to upside risks. Unit labour costs are also rising briskly,with productivity growth remaining subdued.Source: RBA, Statement by Philip Lowe, Governor: Monetary Policy Decision (Accessed May 2023)

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1. Based on the most recent announcement made by the RBA Governor (see the RBA Statement on the Monetary Policy Decision for May 2023 below), identify what type of monetary policy did the RBA implement in this announcement? Which part of the AD-AS model is this policy aiming to shift and in what direction? What does the RBA’s monetary policy decision tell us about which phase of the business cycle we are currently in, and which economic indicator the RBA is most concerned about? (3-4 sentences)

In its announcement, the RBA Governor refers to “the importance of returning inflation to target.”

As part of your Policy Brief, explain what is meant by the inflation target and how does an inflation target contribute to good economic management? Based on the news updates that we discussed in our lectures and tutorials throughout this course, what are some factors that are currently contributing to inflationary pressures in Australia and globally, and which part of the AD-AS model are these factors affecting? (2-3 sentences)

Statement by Philip Lowe, Governor: Monetary
Policy Decision
Number 2023-10
Date
2 May 2023
At its meeting today, the Board decided to increase the cash rate target by 25 basis points to
3.85 per cent. It also increased the rate paid on Exchange Settlement balances by 25 basis points
to 3.75 per cent.
Inflation in Australia has passed its peak, but at 7 per cent is still too high and it will be some time
yet before it is back in the target range. Given the importance of returning inflation to target
within a reasonable timeframe, the Board judged that a further increase in interest rates was
warranted today.
The Board held interest rates steady last month to provide additional time to assess the state of
the economy and the outlook. While the recent data showed a welcome decline in inflation, the
central forecast remains that it takes a couple of years before inflation returns to the top of the
target range; inflation is expected to be 4½ per cent in 2023 and 3 per cent in mid-2025. Goods
price inflation is clearly slowing due to a better balance of supply and demand following the
resolution of the pandemic disruptions. But services price inflation is still very high and broadly
based and the experience overseas points to upside risks. Unit labour costs are also rising briskly,
with productivity growth remaining subdued.
Source: RBA, Statement by Philip Lowe, Governor: Monetary Policy Decision (Accessed May 2023)

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