guy debelle : the reserve bank ’ s operations in financial markets address by mr guy debelle, assistant governor ( financial markets ) of the reserve bank of australia, to the university of adelaide business school, unibreakfast, adelaide, 26 february 2013. * * * i'm very pleased to be back in my home town to talk to you today about the reserve bank ’ s dealings in financial markets. 1 why might you be interested in this topic? i will talk about how the reserve bank actually implements the target interest rate set by the reserve bank board at its monthly meetings. i will then describe how this interest rate, known as the cash rate, affects all the other interest rates in the economy, including mortgage rates, business borrowing rates and deposit rates. so that affects you one way or another. i will also talk about the reserve bank ’ s transactions in the foreign exchange market and finish with some thoughts about the exchange rate more generally. domestic market operations as you all know, on the first tuesday of each month ( except january ), the board of the reserve bank meets to determine the appropriate stance of monetary policy in australia. at 2. 30 pm, just after the conclusion of the meeting, the governor issues a press release announcing the board ’ s decision, along with an explanation for the decision taken. the decision takes the form of a target for the cash rate. it is the job of part of my area, financial markets group, to ensure that the board ’ s target for the cash rate is actually achieved. so how do we do this? and how does that affect the interest rate on your mortgage, your business loan and your deposit? the cash rate is the interest rate on overnight unsecured borrowing in the interbank market. that is, it is the interest rate banks charge each other to borrow and lend funds overnight. ( unsecured means that there is no security, such as a government bond, tied up in the loan as collateral. ) the reserve bank ’ s ability to affect this interest rate comes from the fact that we control the amount of funds or liquidity in this market. banks have deposit accounts with the reserve bank called exchange settlement accounts. these are the accounts across which the myriad of transactions in the economy are settled each day. when you pay your electricity bill by direct debit, the funds are effectively transferred from your bank account, across the exchange settlement account of your bank to that of your electricity company ’ s bank and into the

8 solid years of non - stop computer programming experience, something that was exceptionally unique at that time for a young man just over 20. for a number of very peculiar reasons, gates started his programming venture in as early as 1968 when he was just an eighth grade kid in a high school in seattle. in those days, even university students in the usa would not find it easy to have access to mainframe computers, let alone doing non - stop programming. but gates had the opportunity and the advantage of having done lots and lots of programming, probably more than 10, 000 hours, when he started microsoft, which subsequently outperformed all other competitors in the field by huge margins. the question that i have is this : would bill gates still be the same bill gates that we now know if he did not have the opportunities that were opened to him in these early years of his adolescence that enabled him to jump start on his programming career ahead of so many other equally clever and talented people in the usa? i don ’ t quite know the answer, but let me turn to another example of great success in the last century in the musical world – the beatles. being a person born in the 1950s, it is not surprising that i am very fond of the beatles. john lennon, paul mccartney, george harrison and ringo starr were clearly very, very talented. ever since they launched their hugely successful tour of the usa in february 1964, the beatles had for several decades became the centre of the rock and roll world. but is it true that beatles became so good and so successful simply because they were music geniuses? is it that simple? let ’ s look closer at the days before they became the idol of the world. before 1960, the beatles was still a struggling high school band. however, through some strange connections, beatles got invited to play at some night clubs in hamburg in 1960 – 1962. within a year and a half ’ s time, the beatles played in these hamburg clubs for 270 nights. these hamburg clubs were not the kind of music halls in which proper concerts are conducted. they were more like drinking clubs where lots of people came in and went out constantly as live entertainment on stage was performed. the beatles had to perform 4, 6 or even 8 hours each night. because of so many live performances of very long hours, the beatles had greatly improved their stamina and team work. moreover, they had to try out different varieties of music and songs in order to satisfy the customers. so