Monetary policy is a modification of the supply of money by the Central bank, usually in an effort to reduce inflation, interest rates or some other macroeconomic variable, and to ensure the stability of a country’s currency, minimal unemployment rate, and general welfare of citizens.
Central banks will announce a target value for the macroeconomic variable they’re trying to influence. For instance, most central banks announce a target inflation rate of to on average. To actually work towards achieving such a target, the central bank will tweak a variable called an instrument that these macroeconomic variables, of which the central banks cannot directly control, depend on. The cash rate is one of the most influential policy instruments the RBA tweaks in monetary policies.