An interest rate is the term used to describe the cost of borrowing money or the return to the owner of the funds which are invested or lent out. It is usually expressed as a percent per annum of the amount of money borrowed, lent or invested. This concept applies to individuals, businesses, governments and any other entity.
The Reserve Bank of Australia (RBA) (RBA) is Australia’s central Bank who sets the target cash rate, which is the market interest rate on overnight funds. The RBA meets 11 times a year (the first Tuesday of every month at 2:30pm except for the month of January) when they make an official decision regarding the cash rate target which is explained in a media release announcing the decision after each board meeting.
There are many factors considered when the RBA are considering the rate of interest, such as inflation, market forces, monetary policy and the demand and supply of money in the economy. The goal is to maintain stability for the economy – to speed it up or slow it down.
Lower interest rates will help kick start a sluggish economy by encouraging consumers and businesses to spend more money. Increasing rates slow the economy by encouraging consumers and business to save money and also encourages overseas investors to buy our currency for better returns which will in return raise the value of our exchange rate.
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