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Money and the Capital Market

The State Bank of Pakistan (2010) stated the interest rate then affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. .
             Over the years there have been many fluctuations in the interest rates of both the countries. Prediction of the coming interest rate trends this year will show how the policies of both the central banks differ. This will also emphasize on how these affect the basic characteristics of both the economics such as the inflation and GDP rate.
             2.0 BODY OF THE REPORT.
             2.1 Present historical money market rates.
             2.1.1 Australia.
             It has been noted over the years that central banks have become considerably more transparent, mainly over the past decade. An important part of this has been the increased efforts by central banks to communicate their views about the economic outlook and its implications for monetary policy. Monetary policy is defined by (Labonte and Makinen, 2008) as the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives. In Australia, The Reserve Bank of Australia (RBA) has been responsible for implementing the monetary policy since 14th January 1960, reported by Reserve bank of Australia (2013). The RBA considers into account a number of factors before deciding on how to influence the interest rate. .
             Graph 1 illustrates how the changes in the cash rate in Australia, which is the rate of interest which the central bank charges on overnight loans, showed a tremendous decrease from a figure as high as just below 18 percent in 1991 to 3 percent in 2013. RBA influenced the cash rate keeping the inflation rate and the unemployment rate in mind. So, the interest rate set mainly depends on factors such as the needs of the economy during different situations such as for adjustments to the inflation rate.


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