The cash rate is the Reserve Bank of Australia’s policy interest rate, the rate on unsecured overnight loans between banks. It anchors the interest rates banks set on savings, deposits and loans, and the RBA board reviews it at its scheduled meetings through the year.
The cash rate is the price of the shortest possible loan in the economy: banks squaring their positions with each other overnight. The Reserve Bank steers that rate to its announced target through its market operations, and every other interest rate in the economy takes its cue from there, with lenders adding their own margins for term and risk.
Movements in the cash rate are the RBA’s main tool for managing inflation and employment. A higher cash rate flows into mortgage and deposit rates and cools spending; a lower one does the opposite. The exchange rate responds too, because relative interest rates shift the attractiveness of holding Australian dollars.
An overnight rate is quoted per annum, which puts the headline figure and the money a long way apart. The Reserve Bank defines the cash rate as a volume-weighted average overnight interest rate on a per annum basis, and its own Cash Rate Total Return Index applies that rate over a span of d days as d divided by 365. Suppose a bank borrows $50 million for one night at 4.00 per cent, a rate used here purely as arithmetic. The interest is $50,000,000 times 0.04, divided by 365: $5,479.45. A single basis point on the same borrowing is worth $13.70 for the night. Repeat the loan across 365 nights and simple interest totals $2,000,000, while rolling each night's interest into the next lifts it to about $2,040,400. Roughly $40,400 of that year is compounding rather than the rate.
This page defines the term; the current target, its recent path and the chart live on Tradergy’s cash-rate page, sourced from the RBA.
Longer read: How a cash rate target is made to hold. A target is an announcement. The rate banks actually pay each other overnight is a market outcome, and the machinery that makes the two coincide - settlement balances, a rate corridor, and repurchase auctions that fill every bid - was rebuilt from 2024 onwards.
See the live cash-rate page for where this term shows up in practice.
Related terms
Bond yield · Consumer price index (CPI) · Term deposit · All terms
Primary authority: RBA cash rate. Definition reviewed against the authority’s published material; this page is reference information, not advice.
Common questions
How does the cash rate affect my mortgage?
Variable mortgage rates are priced off banks’ funding costs, which move with the cash rate. When the RBA changes the target, lenders typically adjust variable rates in the same direction, though the size and timing of the pass-through is each lender’s decision.
Who sets the cash rate and when?
The Reserve Bank of Australia’s monetary policy board sets the target at its scheduled meetings across the year, announcing the decision the same day. Between meetings the RBA’s market operations keep the actual traded rate at the target.
Is the cash rate the same as my savings rate?
No. The cash rate is the overnight rate between banks. Savings, deposit and mortgage rates are commercial rates each bank sets for itself, influenced by the cash rate but adjusted for term, risk and the bank’s own funding and margin decisions.