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How are interest rates determined?

The Reserve Bank of Australia (RBA) sets the official interest rate or ‘CASH RATE’ which takes into account a whole list of factors about how the economy is performing at that point in time.

The RBA meets once a month to review the inflation rate, unemployment figures, CPI, PPI and retail sales, and from that information they decide whether to increase, decrease or leave on hold the official cash rate.

The CASH RATE’ is the interest rate that the banks and lenders will pay to the reserve bank. If this increases, your lender will usually pass the cost onto you – the borrower.  If the cash rate decreases, the reserve bank intends that the savings should also be passed on by your lender – but this isn’t always the case.

By moving the interest rates up and down, the RBA tries to keep the Australian economy in check, by either slowing things down to keep the cost of living under control, or speeding up spending to help boost growth in certain areas.