As the COVID cash glut comes to an end, the Reserve Bank is changing the way it sets and maintains interest rates

By Isaac Gross, Lecturer in Economics, Monash University

Every six weeks, the Reserve Bank of Australia sets the “cash rate”, affecting the interest rates paid on every Australian mortgage and savings account.

Like any price mechanism, the cost of borrowing money is determined by supply and demand – how much cash is in the banking system, and how much has been borrowed at any one time.

With powers to manipulate this supply, the Reserve Bank is able to set and precisely achieve its target cash rate.

But during the pandemic, an abundance of cash forced the Reserve…

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