Why does the Reserve Bank of Australia (RBA) make the decision to change the official cash rate?

How and when does this decision affect interest rates for banking customers?

Our Chief Executive Officer (CEO), Dale Grounds explains. 

Even with a lengthy career in this industry, the world of banking and finance can at times, be overwhelming to keep up with. As with any business, there are a lot of operational considerations that take place in the background to help strike a balance between our organisation’s success and the role we play within the broader economy. 

Stick with me now, as I explain what the RBA is trying to achieve by increasing the official cash rate, including the influence over the banking industry and shifting the current levels of inflation.

Earlier this year, the RBA announced a change to the official cash rate increasing it from 0.10% to 0.35%; the first increase in over eleven years. Yesterday, it was increased by the RBA to 1.35%; the second double-barrel 0.50% increase in a row.

Increasing and decreasing this rate has a direct impact on the cost of money for Banks and Credit Unions (like ours) and is a tool used by the RBA to manage inflation. 

So what does that mean for banking customers?

By increasing the cash rate, and therefore a bank’s funding costs, the RBA seeks to increase home loan interest rates, meaning borrowers must increase repayments and therefore will have less money available to buy goods and services. In such circumstances, less purchases of goods and services can slow inflation as this is driven in part, by the demand for goods and services increasing. 

The reverse happens when inflation is low. The RBA cuts rates to increase spending by borrowers on goods and services. This is the circumstance we have faced in Australia over the past decade. The aftermath of the mining and construction boom coupled with the pandemic, has resulted in keeping inflation low and so interest rates reached and stayed, at a record low for a long period of time. 

However, inflation is now at 5.1% in Australia and looking like it may stay high for some time, which is why the RBA has increased rates. You can visit www.rba.gov.au/monetary-policy for more information on the RBA and their responsibility for Australia’s monetary policy.

What rate changes will The Capricornian be making?

The Capricornian is member-owned. Your needs and achieving a good balance for borrowers and depositors are of the highest importance. We aim to keep rates competitive and will continue to support members by investing in the enhancement of our products and banking services.

Because the cost of funding will increase for The Capricornian, we too will reluctantly increase our interest rates. 

If you already have a fixed rate home or investment loan, your rate won’t change until your fixed rate period concludes.   

We’re here to help

We are always here to help, with free financial health checks and real people in our 8 regional Queensland locations. Our Capricornian Contact Centre is based locally at our Head Office in Rockhampton and our wonderful staff can assist you with any questions or concerns.

Call us on 1300 314 900 or email info@capricornian.com.au for more information about our current interest rates and product information.

Regards,

Dale Grounds (CEO) and The Capricornian Team

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