09 May 2022

How Does the RBA Affect Interest Rates?

RBA and Interest Rates

The Reserve Bank of Australia is the country’s central financial planning institution. It decides monetary policy for the country monthly. Its main monetary policy tool is establishing the cash rate. The cash rate impacts banks and lending institutions. During business hours, lending institutions such as Mortgage House conduct business with the public. After hours, lending institutions complete transactions with each other. Banks lend to each other, too. Plus, they borrow from wholesalers. The cash rate determines the cost to borrow after hours. If the rate for banks and lending institutions increases, it will increase interest rates for the public too.

History shows that the RBA cannot raise the cash rate too much. For example, on April 5, 2022, the RBA decided to keep the cash rate at .10%, a move that was widely expected. If the RBA had raised the rate, it would have made borrowing more expensive. Sometimes, it’s necessary to slow down borrowing. Households can only handle so much debt before it becomes a burden even with low-interest rates. Therefore, it’s up to the RBA to prevent the economy from heating up or slowing down too much.

One way to explore possible interest rates is to use our Mortgage House online mortgage repayment calculator for free. Users can explore how interest rates impact their repayments.

RBA and Interest Rates Conclusion

Although the RBA can cause interest rates on mortgage and home loans to increase, Mortgage House offers several cost-saving tools for our products. To learn more, contact our lending specialists today.

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