In contemporary times, at the start of 2020 the RBA introduced expansionary monetary policy, as a means of revitalising the Australian economy, affected by the Covid-19 lockdowns.
Due to the pandemic, the cash rate fell from a low of 0.75% to 0.10%. This is an expansionary monetary policy, as it aims to increase demand for goods and thus increase economic activity.
However, as the effects of the pandemic waned, the RBA introduced higher interest rates, to also combat the housing crisis. Recently, the RBA has increased the cash rate going from 0.10% in 6th April 2022 to 2.35% in 7th September 2022. This is an example of contractionary monetary policy, as the RBA intends to make it harder to borrow loans, reducing demand for high-value goods and services and thus decreasing economic activity. This
The initial drop in cash rate was a direct response to the effects of the Covid-19 pandemic, which caused stagnation in the macroeconomy. However, as lockdowns ended and economic activity skyrocketed, numerous crises such as the cost of living crisis and the housing crisis required the RBA to increase interest rates, and reduce aggregate demand. In doing so, the RBA engaged in contractionary policy to keep inflation low. This was done to keep inflation rate low, and eventually reach a 2-3% range.
