The Reserve Bank of Australia (RBA) Board decided to leave the cash rate unchanged at 3.85% at its July meeting, going against market expectations for a cut.
Leading into the meeting, there was a 97% market expectation for a rate cut, with inflation falling into the RBA’s target band and growing concerns over global risks.
But what does it all mean for you? Let’s start by first understanding what is cash rate.
What is the cash rate?
Cash rate is the rate on unsecured overnight loans between banks — used to manage liquidity. It’s also the RBA’s key monetary policy tool and has significant flow-on effects throughout the economy.
Simply put, it’s the interest rate that banks pay to borrow funds from each other in the overnight money market. It has a direct influence on other interest rates, including mortgage and deposit rates.
Want to dive deeper? You can review the Cash Rate Target | RBA.
How do changes to cash rate impact you?
The cash rate influences interest rates across the economy — including lending and deposit rates — which in turn affect economic activity, employment, and inflation.
This doesn’t just impact those with a mortgage — it affects savers, investors, retirees and anyone looking to build wealth or plan ahead. It’s a good reminder of the importance of ongoing money management and seeking financial advice where needed.
The below infographic by RBA further explains how the changes to the cash rate affect broader economic conditions.
Infographic Source: RBA
You can view the Full Explainer on The Transmission of Monetary Policy here: The Transmission of Monetary Policy
July update
The Reserve Bank of Australia (RBA) has noted that inflation is easing, though it remains a little higher than expected. They’re holding off on any major moves until there’s clearer evidence that inflation is steadily moving towards their 2.5% target. While financial markets are doing better, global trade issues are still expected to have a negative impact. The job market is showing signs of slowing, with employers still struggling to find the right people, and although wage growth has eased, productivity remains low and costs are high. Overall, there’s uncertainty about how quickly things will improve, and if economic demand drops further, we could see slower job growth and potential interest rate cuts ahead.
Following the announcement
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Australian shares fell;
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Bond yields rose as prices dropped;
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and the Australian dollar gained against the US dollar.
Your move: navigating the current landscape
Whether you're managing a mortgage, growing your investments, or preparing for retirement changes in interest rates can affect your financial decisions and future plans.
At PictureWealth, we offer clear and personalised advice to help you stay on track, whatever the market brings.