The latest news and announcements from the RBA
On the first Tuesday of every month except January, the board of the Reserve Bank of Australia (RBA) meets to discuss monetary policy and determine the official cash rate. After taking into account factors such as the strength of the economy, the strength of the Australian Dollar, the performance of the housing market and levels of consumer confidence, the board decides whether to raise interest rates, lower them or keep them at the same level.
A full rundown of the minutes of each board meeting can be found on the RBA website. These minutes detail the board’s discussion about global financial markets, international economic conditions, domestic economic conditions and the considerations for monetary policy. At the end of each meeting, a decision is reached on what to do with the official cash rate.
This decision is then announced to the rest of the country on that same Tuesday afternoon. Most famously, the rate announcement in November coincides with the Melbourne Cup.
What happens when the cash rate changes?
A change in the cash rate affects a range of financial products and services in different ways.
A rise in the official cash rate is typically unwelcome news for borrowers, with most banks quick to raise the interest rates they offer on their home loan packages. This results in a larger amount of interest you will have to pay on the amount you borrowed. However, borrowers with fixed rate loans will be able to avoid the extra financial pressure of a rise in the cash rate until their fixed rate period ends.
If the cash rate is lowered by the RBA, however, holders of variable rate loans will be able to take advantage of a reduction in the amount of interest they have to pay towards their loan. On the flipside, those with fixed rate loans will not be able to take advantage of reduced interest charges.
Lower interest rates usually also result in more people entering the property market because buying a house is seen to be more affordable. This increased competition in the property market can drive housing prices up.
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If you’ve got a high-interest savings account, a rise in the cash rate will come as good news. If your bank passes the rate rise on to your account, you’ll be able to enjoy earning an increased amount of interest on your savings balance.
Conversely, a drop in the cash rate will mean that your hard-earned savings earn less interest in your account. While rate rises encourage people to save their money rather than spend it, rate drops do the opposite.
If you have savings stored in a term deposit account, changes to the interest rate won’t affect your savings. Once your deposit matures, you’ll then be able to shop around for a savings account that offers the best rate and features.
If the interest rate rises and you have debt on your credit card, expect to fork out more in interest charges as you work to pay off the outstanding balance on your card. Cash rate rises are designed to reduce inflation, which could mean that the value of your debt remains the same, but multiple rises would need to be announced for this to happen.
When the cash rate drops, it’s often great news for credit card holders. If your financial institution passes on the rate cut to the purchase rate on your card, you’ll have to pay less interest on the balance of your card. This can make it more affordable for you to make a range of purchases and you may find it easier to pay off your debt.
However, when your bank doesn’t pass on the interest rate cut, you may wish to shop around for a card that offers a more attractive purchase rate.
History of cash rate changes
Official Cash Rate
|May 2015||Rate cut by 0.25%||2.00%|
|April 2015||No change||2.25%|
|March 2015||No change||2.25%|
|February 2015||Rate cut by 0.25%||2.25%|
|December 2014||No change||2.50%|
|November 2014||No change||2.50%|
|October 2014||No change||2.50%|
|September 2014||No change||2.50%|
|August 2014||No change||2.50%|
|July 2014||No change||2.50%|
|June 2014||No change||2.50%|
|May 2014||No change||2.50%|
|April 2014||No change||2.50%|
|March 2014||No change||2.50%|