What the RBA Is and How It Influences Interest Rates

Cash rates

The cash rate is the interest rate banks pay to borrow funds from other banks in the money market overnight. The RBA sets a target for the cash rate as part of monetary policy. Because this target influences banks’ funding costs and financial conditions, it can flow through to the rates offered to borrowers.

The Monetary Policy Board meets eight times a year to decide whether to change the cash rate target or leave it unchanged. These meetings follow the release of key economic data on inflation and economic activity, and the decision is published after each meeting.

In simple terms, if the RBA wants to support spending and economic activity, it may lower the cash rate target to make borrowing cheaper. If it wants to slow demand and ease inflationary pressure, it may raise the target so borrowing becomes more expensive and spending cools.

If you want to go deeper on the RBA’s role and functions, the RBA website has detailed explanations of monetary policy and how the cash rate works.

How this affects your home loan

Banks and lenders use the cash rate target as a key benchmark when setting interest rates on home loans and other products. If the RBA increases the cash rate target, variable home loan rates often rise too, because the overall cost of money in the economy has moved higher.

But an RBA change doesn’t guarantee your home loan rate will change by the same amount. Lenders set their own rates, and they can pass on all, some, or none of a change depending on their funding mix, pricing strategy, and competition.

Most lenders communicate these changes quickly, usually via email, online banking notifications, or public announcements.

If you’re ready to dive deeper into how your rate is set, read our article on how banks and lenders set their interest rates.