What is a Central Bank?
A Central bank is a national bank that provides financial and banking services for its country’s government and commercial banking system.
What is the role and function of A Central Bank?
- To set official bank rates used to manage inflation and exchange rates
- To issue a country’s currency
- To set targets and monitor economic data while they implement special tools.
One of the special tools that a Central Bank uses is Interest/bank rate adjustments. When a Central Bank sees a need to hike or cut its rates, they do as they see fit.
Why do Central Banks hike the Interest Rates?
When the economy is growing at a rate that may lead to hyperinflation (monetary inflation occurring at a very high rate) that is when the Central Bank hikes the county’s interest rate.
Why do Central Banks cut the Interest Rates?
Central banks may cut the Interest Rates to encourage people to borrow more money at a lower rate, be it for new houses or businesses. The aim is to make saving money less attractive as the returns are lower when the rates are cut. The other reason is to make the country’s currency expensive and to encourage the citizens to buy local goods.
About Reserve Bank OF Australia (RBA)
The Reserve Bank of Australia releases its interest rates 8 times a year, excluding January. On February 6th, the RBA had its first meeting of the year. On June 18th, they held their 4th meeting and kept the interest rates at 4.35%.
Why Do We (traders) Care About Interest Rates?
Interest rates are a primary tool that a central bank uses to evaluate its currency. If the plan is to hike, it strengthens the currency, and if the plan is to cut, it weakens the currency.
Below are the RBA ’s 2024 dates to help you plan your year better. Thank you for stopping by. Please help me reach as many traders as possible by sharing this post. Should you wish to learn how to trade the Interest Rates, you can check my fundamental analysis course.
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