Australian interest rate history is a great way to understand major moments in economic history, both local and global.
Broadly speaking, Australian interest rates fall in times of economic crisis, low inflation and high unemployment. Rates rise, sometimes very fast, when the economy is booming or inflation is surging.
The major driver of interest rates is the official cash rate target set by the Reserve Bank of Australia (RBA).
When the cash rate falls, interest rates on home loans and savings accounts fall. This is good news for borrowers but bad news for savers earning interest in their savings accounts.
This graph shows the history of the official cash rate target since 2002 and the average bonus savings rate on Australian savings accounts.
While the two rates aren't identical, savings rates move up and down in a very close relationship to the official cash rate.
The graph above shows the rise in savings account rates from the Big Four banks as interest rates have started to rise.
The pattern is clear: savings accounts rates have followed the movement of the cash rate. But the banks have been slow to pass on these rate rises (and often haven't passed them on in full to savers).
The graph above shows the history of home loan rates. There was steady growth in the standard variable home loan rate from 1959 all the way until the 17% peak in 1990.
You can also see the rapid fall in home loan rates post-GFC and the soaring increases of 2023–23.
The line in red starts later as the data does not go back as far. This shows the discounted variable rates that are closer to what most borrowers can actually get on the market today.
The cash rate was 17.50% at the start of 1990. Rates had risen throughout the 1980s to combat soaring inflation.
With interest rates for borrowers so high, mortgage repayments became very expensive for Australian borrowers. However, the interest rate peak was short lived.
The cash rate fell rapidly from its January 1990 peak. And so too did interest rates for borrowers and savers. By December 1990 the cash rate was 12.0%.
By July 1993, as the economy was slowly recovering from recession the RBA lowered the cash rate to 4.75%.
Inflation was now "under control", according to then RBA governor Bernie Fraser, but there was not yet enough business investment "necessary to sustain a solid recovery."
In the years that followed, the cash rate moved much less dramatically, never going lower than 4.25% or higher than 7.50%.
And then as the Global Financial Crisis shook the world in 2008, the RBA slashed the cash rate by an entire basis point in October.
A press release accompanying the decision noted drily that "Conditions in international financial markets took a significant turn for the worse in September."
In early 2009 the cash rate dropped to a then-record low of 3.00%.
Over the decade following the GFC the cash rate crept back to 4.75% in 2011 and then very gradually fell to 1.50%.
It stayed at 1.50% from September 2016 until May 2019.
While the RBA had already made modest cuts to the cash rate to stimulate the economy and increase employment, the economic effects of the Covid pandemic forced more drastic action.
By 2021 the cash rate fell to just 0.10% in an effort to stimulate a struggling economy. A boom in property prices followed.
Australian interest rates could not stay at rock bottom forever. But when they rose, they rose fast.
A complex combination of strong post-lockdown economic recovery, supply chain constraints and the disruption of Russia's invasion of Ukraine in 2022 led the RBA to very suddenly start raising interest rates.
The graph below shows the average bonus savings rate across Australian savings accounts each year.
| Year | Average bonus savings rate |
|---|---|
| 2002 | 2.9 |
| 2003 | 2.94 |
| 2004 | 3 |
| 2005 | 3.4 |
| 2006 | 4.03 |
| 2007 | 4.6 |
| 2008 | 5 |
| 2009 | 2.39 |
| 2010 | 3.94 |
| 2011 | 5.11 |
| 2012 | 4.96 |
| 2013 | 4.27 |
| 2014 | 3.77 |
| 2015 | 2.88 |
| 2016 | 2.33 |
| 2017 | 1.92 |
| 2018 | 2.08 |
| 2019 | 1.89 |
| 2020 | 1.01 |
| 2021 | 0.35 |
| 2022 | 1.37 |
| 2023 | 4.33 |
Source: RBA
The RBA plays a major role in overseeing Australia's monetary policy. This includes setting the cash rate target. This is a benchmark rate that determines the costs major banks incur when borrowing money from each other in the short term.
The cash rate has a major impact on the rates banks and lenders set for:
The cash rate is a policy tool that allows the RBA to influence the economy. Generally speaking:
Banks and lenders adjust their interest rates on home loans and savings accounts because of many factors. The cash rate is a major one, but there are many others.
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