The interest rates that banks charge borrowers and pay to savers influence the decisions of businesses and households about how much they want to borrow or save. To fully understand the transmission of monetary policy, it is important to understand what banks’ funding costs and lending rates are, and what influences them.
Interest rates are directly affected by monetary policy decisions made by the RBA. The RBA in deciding on whether to increase, decrease or to leave the cash rate unchanged considers the wider economy, especially factors affecting employment and price stability.
To fully understand interest rates, we need to understand what is happening in the economy.