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The expansionary monetary policy decisions of the Reserve Bank of Australia (RBA) during the six months after the global financial crisis (GFC) escalated in September 2008.

1. Executive Summary

2. Monetary Policy of Australia after GFC

2.1 Arguments in Support of policy Decision

2.2 Arguments against the policy decision

3. Conclusion

References

The expansionary monetary policy decisions of the Reserve Bank of Australia (RBA) during the six months after the global financial crisis (GFC) escalated in September 2008.

1. Executive Summary

The assignment is based on the Global Financial Crisis 2008 and its impact on the Australian economy. The assignment covers the main reason behind the GFC and the response of Australia’s reserve bank regarding the expansionary monetary policy to fight the Global financial Crisis. Later assignment also has the arguments in support and against the policy decision. Later it is concluded by following the evaluation outcomes.

2. Monetary Policy of Australia after GFC

The global Financial Crisis of 2008 was considered as the worst financial crisis since year 1930 by several economists. It leads to the total collapse of many large financial institutions, the rescue of many banks by the government and major downfall of the world’s stock market (Williams, 2012). Due to the crash of the global share market, the Australian Dollar also collapsed. The net wealth of Australia was declined and the unemployment was increased considerably. There was a wave of uncertainty that swept the entire economy of Australia. . As per the data, the average of the household debt was increased from increased from $A190 billion in 1990 to $A1.1 trillion in year 2008 (ABS, 2009). The direct impact of the Global crisis 2008, in Australia was:

• The decline of Australian Dollar from 0.98 to 0.60
• The decline in the summative value of the households between 13 to 14 %
• The significant decline in the household consumption
• The increase in saving of household from 1.2 % to 8.5 %
• Increase in rate of unemployment from 4.1% to 5.8 %

The Australian government was very prompt to take the action against the situation in order to reduce the impact of the Global Financial crisis 2008. The reserve bank of Australia decided to loosen the monetary policy for one year with the aim of rectifying the loss of big business and consumers that occurred due to Global Financial Crisis. Under this policy the RBI made the considerable reduction in the interest rates and increased the money supply in market. This led to overall consumption in the market of Australia (Green et al., 2009). The cash rate as also reduced by the reserve Bank and it lead to overall 4 % drop within the months of policy formulation.