How the RBA cash rate affects your mortgage

The cash rate is the RBA's main policy lever. It doesn't directly set your mortgage rate — but it heavily influences variable-rate moves and shapes the curve fixed rates are priced from.

The Reserve Bank of Australia's cash rate target is the headline policy lever Australian monetary policy moves through. It's the rate the RBA targets for the overnight unsecured market between commercial banks. When the cash rate moves, your mortgage rate usually does too — but the relationship is less mechanical than the headlines suggest.

This guide walks through the actual transmission mechanism so you understand what to expect after each RBA decision. For the current cash rate target and the full history of changes, see the RBA's [cash rate page](https://www.rba.gov.au/statistics/cash-rate/).

What the cash rate actually does

When commercial banks settle transactions with each other, the surplus or shortfall settles through Exchange Settlement accounts at the RBA. The cash rate is the rate the RBA targets for overnight lending between those accounts. It's the cheapest funding cost banks can access for very short-term liquidity.

Banks fund mortgages from a mix of sources: customer deposits, wholesale debt issuance, and short-term money-market funding. The cash rate directly affects only the last bucket — but it heavily influences the first two through expectations and term-structure pricing. So when the RBA moves, the bank's marginal cost of funding moves too, even though only a slice of the funding stack reprices immediately.

Variable rates — the usual flow

After an RBA decision, most major lenders announce within a week whether they're passing through the change. For cuts, lenders sometimes hold back a few basis points to widen margins. For hikes, the full move is usually passed through within 1-2 weeks.

The change typically takes effect 2-4 weeks after announcement, depending on the lender's contractual notice period. Your monthly repayment recalculates at the next direct-debit cycle after the rate change date.

Three things to remember:

- The cut or hike applies to your variable balance from the effective date forward — there's no retrospective adjustment. - Most lenders quietly maintain a different rate for new customers vs existing customers. After a cut, existing customers should call retention to ensure they're on the new pricing. - Promotional / package discounts are usually expressed as a discount off the standard variable rate, so they move with it automatically.

Fixed rates — a different mechanism

Fixed rates are priced from the bond market's expectations of where the cash rate will be over the fix term, not the current cash rate. So fixed rates can move significantly without any current RBA decision — they reprice continuously based on shifts in the swap curve.

This is why you sometimes see fixed rates fall in the weeks before an RBA cut (the market's already priced it in) or rise without any RBA action (markets revising upward their expectations of future hikes). Fixed-rate movements are forward-looking; cash-rate decisions are point-in-time confirmations of where policy actually is.

What you should do after an RBA decision

If you're on a variable rate:

Wait 2-3 weeks for your lender to announce. Confirm via your lender's website or your loan account whether your rate has moved and what the new rate is. If your lender hasn't matched the move (or matched it less than competitors), that's a prompt to call retention and ask to be repriced — a 0.10-0.20% gap on a $600K loan is around $720-1,440 a year in interest.

If you're on a fixed rate:

The cash rate change doesn't affect your existing fixed loan — your rate is locked. But if you're due to refix soon, the RBA decision usually shifts the curve fixed rates are priced from, so your refix quote will reflect it.

If you're shopping for a loan:

Use the immediate post-RBA window to lock in or negotiate. Lenders often update rate sheets within the week and competitive pressure is most visible in the first month after a decision.

For the latest cash rate target and the underlying decision dates, the RBA publishes everything on the [cash rate target page](https://www.rba.gov.au/statistics/cash-rate/).