Understanding interest rates

By Your Mortgage

The main role of the Reserve Bank of Australia (RBA) is to set monetary policy, and part of this includes determining the official cash rate. The cash rate is the main influencing factor of the activity level in the economy. When changes are made to the cash rate, there is almost an immediate impact on the mortgage interest rates that banks and other financial institutions charge.

This article explains the reason the RBA changes the cash rate, how inflation influences the RBA's decision to change the cash rate, and the impact of the increases. It also explains Economic Indicators, which are factors that enable the RBA to follow and predict the market and interest rate movements. These factors include:

1. Unemployment rate 2. Consumer price index (CPI) 3. Producer price index (PPI) 4. Retail sales