What is the cash rate and what does it actually mean for your finances?
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00:00Let's talk about the cash rate because it's big news at the moment and it's probably having a big
00:04effect on your finances. But what actually is it? In really simple terms, the cash rate is a figure
00:10set by the Reserve Bank of Australia and it dictates how much interest banks may have to pay
00:15on money they borrow on the money market overnight. The Reserve Bank of Australia meets eight times a
00:20year to decide whether the cash rate will move up or down. They make their decision based on things
00:26like the general growth of the economy, inflation and employment figures. If inflation gets too high
00:32above about two or three percent, that's when you may see the cash rate become higher as well to
00:38try and compensate. At the end of 2024, inflation started to slow and so that's why most economists
00:45predicted a rate cut in early 2025. The cash rate hit its highest point in 11 years during 2024 at
00:514.35 percent, which means banks were paying that percentage of interest back on the money that
00:56they borrowed. Now this may all just sound like numbers, so what does it actually mean for you?
01:02Well, if the banks are paying high interest rates, they may pass that on to the people who borrow
01:08money from them, people with a home. If the cash rate is low, your interest rate on things like a
01:13mortgage are much likely to be lower. But in 2024 and 5 when we've seen these really high rates,
01:18remember that 4.35 percent, so many people are paying more on their home loans. And if you're
01:24a renter and your landlord has a mortgage and their repayments have gone up a lot,
01:28you could see that extra cost passed on to you in rent.