The Reserve Bank of Australia (RBA) cash rate is the interest rate at which banks lend and borrow money from each other in the overnight money market. It is set by the RBA board at regular meetings and is the primary monetary policy lever used to manage inflation and economic activity.
How the cash rate flows through to mortgages. When the RBA changes the cash rate, banks’ funding costs change almost immediately. Lenders typically pass on a significant proportion of cash rate changes to their variable rate mortgage products within days of the RBA announcement. The full impact depends on the lender’s funding mix, competition, and margin decisions.
Variable vs fixed rates. Variable rate mortgages move with the cash rate — borrowers benefit from rate cuts and bear the burden of rate rises immediately. Fixed rate mortgages are priced based on market expectations for the cash rate over the fixed term, set at the time of drawdown. Fixed rates do not move when the RBA changes the cash rate — they only reset at the end of the fixed term.
Impact on investment property. For investment properties with variable rate loans, each 0.25% RBA rate movement changes monthly interest costs. A $600,000 interest-only investment loan increases by approximately $125 per month for each 0.25% rate rise.
Buffer rate assessment. Lenders assess mortgage applications at a buffer rate above the current offering rate (minimum 3%). This means borrowers approved at current rates have demonstrated capacity to service the loan at materially higher rates.
