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What is the Reserve Bank's official cash rate and why should I care?
The Reserve Bank of Australia’s official cash rate is the overnight money market interest rate that the RBA charges on overnight loans to commercial banks.
Commercial banks – such as the big four banks, regional banks, credit unions and building societies – are influenced by the official cash rate when they decide what interest rates to charge consumers for their loan products.
How does the RBA official cash rate work?
The Reserve Bank board meets on the first Tuesday of every month (except January) to decide whether or not to change the official cash rate.
After each meeting, the Reserve Bank issues a statement to announce its decision, and the information it considered in reaching its decision.
The RBA has an official cash rate graph and an interactive information display on its website, which are useful in comparing how the official cash rate has changed over the years.
Generally, the RBA usually has another table on interest rate decisions, which usually shows the percentage change per month and the cash rate target. For transparency, the RBA usually provides documents such as official statements and minutes. It goes as far back as the 1990s.
In some cases, the RBA official cash rate will remain unchanged for more than a year, but sooner or later it moves up or down. The official cash rate changes in increments of 0.25 percentage points – so the rate might move up or down by 0.25 percentage points or 0.50 percentage points or 0.75 percentage points, etc.
Why should I care?
The official cash rate influences what interest rate commercial lenders charge customers for mortgages and other loan products. This means that if the official cash rate moves, there’s a good chance the interest rate on your loan product will also change.
Consequently, changes in the official cash rate may greatly affect your monthly mortgage repayments. It might be best to try a home loan repayments calculator in order to manage your expenses.
About the Reserve Bank of Australia
The Reserve Bank is Australia’s central bank, with its powers and functions clearly stated in the Reserve Bank Act of 1959.
Its main job is to ensure the stability of the Australian currency and the overall economic prosperity of Australians.
Disclaimer
This article is over two years old, last updated on December 1, 2017. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent home loans articles.
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