Help, Monetary Policy (1 Viewer)

[girrawhat]

Hey guys, I was studying for monetary policy but I am struggling to understand domestic market operations. Can anyone put it in a simple way so that it is easier to understand. I was reading my Textbook but i am still finding it difficult to grasp.

 

[Myans]

Essentially the RBA influences the supply of cash in the overnight money market (market for banks). If they Sell CGS to Banks --> Shortage of Borrowable funds as the RBA take money out of their Exchange Settlement Accounts (ESAs). If they Buy CGS from banks --> Surplus of Borrowable funds as the RBA injects money into the banks' ESAs

Once you understand that process, simple analysis of how the supply and demand of cash influences interest rates is pretty straight forward. If you need more clarification reply back.