Written byThe RBA (Reserve Bank of Australia) is Australia's central bank: it sets the cash rate that flows through to loan and savings rates, and operates key payment settlement systems.
Also known as: Reserve Bank of Australia, Reserve Bank, central bank
Key points
- The RBA's Monetary Policy Board sets the cash rate to keep inflation near its target while supporting employment, announcing decisions after each meeting.
- Lenders set their own rates, but cash rate moves usually reach variable-rate loans within days or weeks; fixed rates move on expectations.
- It works alongside APRA and ASIC on financial stability, issues banknotes and provides banking services to the Australian Government.
- Its minutes, quarterly Statement on Monetary Policy and Financial Stability Review are the main public guide to how it sees the economy.
What the RBA does
The RBA's responsibilities fall into a few core roles. Monetary policy: it sets the cash rate, the rate at which banks lend to each other overnight, to meet its inflation target and support sustainable employment. Financial stability: it monitors the financial system and works with APRA and ASIC, each of which has a distinct job (prudential regulation and market conduct). Payments: it operates Real-Time Gross Settlement and supports the New Payments Platform so obligations between banks settle securely and promptly.
It also designs and issues Australia's polymer banknotes, acts as banker and agent for the Australian Government, transacts in government securities as part of its market operations, and publishes statistics, minutes, speeches and research. Its monetary policy decisions are operationally independent; the bank is accountable through statutory reporting, published minutes and appearances before Parliament.
How the cash rate reaches your loan
When the RBA changes the cash rate, the effect on households and businesses is indirect but usually quick. Lenders adjust variable home loan rates in response to cash rate moves and their own funding costs, often by a similar amount and sometimes more. Fixed rates are priced off expected future cash rates, so they can move before or after a decision as markets reprice. Deposit rates tend to lag and depend on competition for funds.
For businesses, cash rate changes feed into short-term lending costs, lines of credit and overdrafts, which affects investment and hiring decisions for small and medium businesses. Credit card rates do not move in lockstep, but funding costs still shape unsecured pricing. Higher rates can also support a stronger dollar, lowering import prices and easing inflation.
How decisions are made and published
The RBA's Monetary Policy Board meets on a published schedule to weigh economic data, forecasts and risks. It brings together the Governor, the Deputy Governor, the Secretary to the Treasury and external members appointed for their expertise, while governance of the bank itself sits with a separate board. A decision and a short statement are released immediately after each meeting. Minutes follow about two weeks later with more detail on the discussion, and the quarterly Statement on Monetary Policy sets out the RBA's analysis and forecasts. The Financial Stability Review comes out twice a year.
Beyond the cash rate, the RBA has other tools for stressed markets: short-term liquidity operations, buying or selling government bonds to influence longer-term yields, foreign exchange operations in disorderly currency markets, and special programs to keep credit flowing in a crisis. These are backstops rather than everyday levers.
Example
A landscaping business has a variable-rate loan over its yard and equipment. Over a year the RBA raises the cash rate and the lender passes the increases through, so repayments on the variable facility climb and more of each payment goes to interest rather than principal. The owner's fixed-rate equipment loan is untouched until its fixed term ends, which is one reason businesses often mix fixed and variable finance. When that fixed term expires, the equipment loan reprices to whatever the market looks like then, so the owner starts planning for it early.
Not to be confused with
Frequently asked questions
Does the RBA set my mortgage rate?
No. Your lender sets your mortgage rate. The RBA sets the cash rate, which is the biggest single influence on lenders' funding costs, so variable rates usually follow cash rate moves within days or weeks. But competition and each bank's funding costs decide exactly how much of a change is passed on.
When does the RBA announce cash rate decisions?
The RBA's Monetary Policy Board meets on a schedule published on the RBA calendar, and the decision and a short statement are released immediately after each meeting at a set time. Minutes follow about two weeks later. Subscribe to RBA releases or check the calendar if you need the exact dates.
How quickly do banks react to a cash rate change?
Variable-rate loans typically move within days to weeks of a decision. Fixed rates respond to market expectations of future policy, so they can shift before a meeting as well as after. Deposit rates often lag, and how much of a change is passed on depends on each bank's funding costs and competition.
How do RBA decisions affect a business?
Cash rate changes flow into the cost of overdrafts, lines of credit and other short-term business borrowing, the cost of capital for investment, and the exchange rate, which matters for anyone importing or exporting. For small and medium businesses the effect on investment and hiring decisions can be significant.
What is the difference between the RBA and APRA?
The RBA is the central bank: it sets monetary policy and looks after the stability of the financial system as a whole. APRA is the prudential regulator: it supervises individual banks, insurers and super funds to make sure they hold enough capital and stay solvent. They work closely together but have distinct responsibilities.
Related terms
APRA
APRA is the Australian Prudential Regulation Authority, the statutory regulator responsible for prudential regulation of banks, credit unions, insurers and superannuation funds, protecting depositors, policyholders and fund members.
Read definitionASIC
ASIC is the Australian Securities and Investments Commission, the regulator for companies, markets, financial services and consumer credit, which licenses providers, keeps public registers and enforces conduct laws.
Read definitionVariable rate
A variable rate is an interest rate that can move up or down over the life of a loan, following the lender's benchmark and its margin.
Read definitionFixed rate
A fixed rate is an interest rate locked in for a set term, so the rate and usually the repayments do not change until that term ends.
Read definitionInterest
Interest is the price of using money: what a borrower pays on a loan, or a saver earns on a deposit, expressed as a percentage rate on the principal.
Read definitionPrudential regulation
Prudential regulation is APRA's framework of capital and risk rules designed to keep banks, insurers and superannuation funds financially sound, and it shapes how much they lend.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.