What is the primary goal of the cash rate adjustments by the RBA?

The primary goal of cash rate adjustments by the Reserve Bank of Australia (RBA) is to manage inflation. By altering the cash rate, the RBA influences the cost of borrowing and, consequently, consumer and business spending. When the cash rate is increased, borrowing becomes more expensive, which typically reduces spending and investment, leading to a decrease in inflationary pressures. Conversely, lowering the cash rate makes borrowing cheaper, encouraging spending and investment, which can help boost economic activity during periods of low inflation or economic downturns.

Effectively managing inflation is crucial for maintaining the economy's stability and health. High inflation can erode purchasing power and harm economic growth, while deflation can lead to reduced spending and economic stagnation. Consequently, the RBA uses cash rate adjustments as a tool to achieve the target inflation rate, aligning with its broader monetary policy objectives.