Interest rates

The benchmark or official interest rate in Australia is often known as the Cash rate.

The cash rate was last reported by the Reseve Bank of Australia at 4.75 percent.

In Australia, interest rate decisions are taken by the Reserve Bank of Australia in forming monetary policy for the Australian economy. The bank operates in the money market to keep the cash rate as close as possible to the Board’s target.

In essence, the cash rate is the rate charged on overnight loans between financial intermediaries, determined by the demand and supply of exchange settlement (ES) balances which commercial banks hold at the Reserve Bank. The bank meets once each month, on the first Tuesday of the month, to decide on the appropriate level for the cash rate, and whether or not it needs to change from its current level.

Through its open market operations, the Bank alters the volume of ES balances so as to keep the cash rate at the desired level.

From 1990 until 2010, Australia’s average interest rate was 5.81 percent reaching an historical high of 17.50 percent in January of 1990 and a record low of 3.00 percent in April of 2009.

For some time Australia’s home loan interest rates have been tracked against the cash rate (being a marhin above the cash rate) and often variable home loan rates will move when the Reserve Bank announces an interest rate decision.