The cash rate is the Reserve Bank’s main lever on the economy. Here’s how it works, and why a decision in Sydney changes what you pay on your home loan.
When the Reserve Bank of Australia “moves rates”, it is changing one number: the target for the cash rate.
The cash rate is the interest rate banks charge each other to borrow money overnight. Banks lend to each other every day to make sure they have enough money on hand to settle payments, and the cash rate is the price of those loans.
The Reserve Bank doesn’t set your mortgage rate directly. But because the cash rate is the starting point for what it costs banks to fund themselves, almost every other interest rate in the economy moves with it.
Decisions are made by the RBA’s Monetary Policy Board, which took over the job from the Reserve Bank Board in 2025. It meets eight times a year, usually over two days, and the decision is published in a media release at 2:30pm on the final day. The Governor then usually explains the decision at a media conference.
The Board’s job is to keep inflation between 2 and 3 per cent over time, while keeping as many Australians in work as possible. When prices are rising too fast, it raises the cash rate to slow spending. When the economy needs support, it cuts.
How a rate decision reaches your household
For most Australians, the cash rate matters most through their home loan.
Most Australian mortgages are variable, so when the cash rate rises or falls, banks typically change their variable rates by a similar amount, usually within a few weeks. On a large loan, even a quarter of a percentage point can change repayments by hundreds of dollars a month.
Fixed-rate loans don’t change until the fixed period ends. But the rates offered on new fixed loans move with what markets expect the Reserve Bank to do next, which is why fixed rates sometimes change before the RBA does.
Savers feel the other side. When rates rise, banks tend to lift what they pay on savings accounts and term deposits, though often by less, and more slowly, than they lift loan rates.
Rate changes also ripple well beyond the household budget. Higher rates make borrowing more expensive for businesses, can cool the property market, and tend to strengthen the Australian dollar, which makes imports cheaper. Lower rates do the opposite.
That’s why rate decisions take time to work. Economists generally expect a change in the cash rate to take a year or more to have its full effect on spending and inflation, which is why the Board looks ahead, not just at today’s numbers.
Ahead of each meeting, markets and economists watch the latest inflation figures, jobs data and the Board’s own words for clues. The next decision date, and every past decision, is listed on the Reserve Bank’s website.
