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  • Writer's pictureSteven Feng

How's RBA interest rate impact our daily life

What is RBA and their responsibility

The Reserve Bank of Australia (RBA) is Australia's central bank and derives its functions and powers from the Reserve Bank Act 1959. Its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by conducting monetary policy to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system, and issuing the nation's banknotes.

The RBA provides certain banking services as required to the Australian Government and its agencies, and to a number of overseas central banks and official institutions. Additionally, it manages Australia's gold and foreign exchange reserves.

How's RBA impact the Financial market

The cash rate that RBA announced will not directly effect the interest rate of 'Business loan, Home loan or Personal loan, etc.). The rate will impact overnight loans money market.

The overnight loan market is served for major banks. In every weekday morning, bank and financial institutions will analysis their cash reserve on a daily basis and assess whether they have a excess or deficit in respect to their demand. If they have an excess cash reserve, they may lend money on the overnight money market. If they have deficit cash reserve, they may borrow more money from the market, And rate for their landing and borrowing is the RBA interest rate. This may also been considered as the institute's lowest interest rate.

With a guide interest rate, institute could decide the interest rate for their own product. They may have the interest rate much higher than overnight market, but they may also need to balance the requirement by other ways.

General speaking, the higher the RBA interest rate, the higher interest rate we may have for our financial product.

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