At today's board meeting the Reserve Bank decided to leave the cash rate unchanged at 2.00% - the same level since May 2015.
The Reserve Bank sets the target 'cash rate', which is the market interest rate on overnight funds. It uses this as the instrument for monetary policy, and influences the cash rate through its financial market operations. Decisions regarding the cash rate target are made by the Reserve Bank Board and explained in a media release announcing the decision at 2.30 pm after each Board meeting.
The Reserve Bank of Australia (RBA) cuts the cash rate in response to a slowing down of the economy and lower inflation. As variable mortgage interest rates generally fall in response to the RBA cuts, the economy is usually boosted through higher consumer spending and borrowing for housing. Conversely, when spending becomes high and consumers are saving less, in theory the RBA will increase the cash rate to encourage saving.
The official cash rate set by the Reserve Bank of Australia (RBA) will determine the changes of interest rates for commercial banks and lenders.
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