Eight times a year the Reserve Bank board meets, and for a few days "the cash rate" is everywhere. Here is what that number actually is, how it flows through to your repayment, and what borrowers can usefully do about it.
What the cash rate is
The cash rate is the interest rate banks pay to borrow from each other overnight, set as a target by the RBA to steer inflation. It is the anchor for the cost of money in Australia: when it moves, the cost of funding a bank’s home loan book moves, and variable mortgage rates usually follow within weeks.
What a change means in dollars
A 0.25% move on a $650,000 loan changes repayments by roughly $100 a month; a full 1% is around $400. That is the direct effect. The indirect one is bigger: because lenders assess new borrowing with a 3% buffer on top of actual rates, every rate rise also shrinks how much buyers can borrow, which flows through to property prices.
Fixed loans and the cash rate
Fixed rates move on expectations, not announcements. Lenders price fixed terms off what markets predict the cash rate will average over that term, so fixed rates often move months before the RBA does. By the time a cut is announced, it is usually already priced in. This is why "should I fix?" is really a question about your budget, not about out-predicting the market. See fixed vs variable.
What to actually do at each announcement
- Rates cut: check your lender passed it on in full, and keep repayments at the old level to get ahead. See paying your loan off faster.
- Rates rise: confirm your rate is still competitive; rises are when lazy loans get expensive fastest.
- Either way: if your rate has drifted from what new customers get, reprice or refinance.
Rate Watch™ reviews every client’s rate yearly against the market, automatically.
Get your rate reviewed free →