From 2020 to now, you have observed an anxious wait by businesses and the general public for the Reserve Bank of Australia’s (RBA) announcement on interest rate changes at the end of each month. The RBA has been reducing the cash rate since 2011. However, the reduction was sharp from 2020 to 2021 to reduce the possible adverse economic effects of Covid -19. On the contrary 2022 has been marked by significant increases in the cash rate to curb inflation.

a. What is the cash rate?

b. What is the likely effect on the general prices of shares of an announcement by the RBA of:

i) a decrease in the cash rate? and

ii) an increase in the cash rate?

Answer rating: 100% (QA)

a The cash rate is the interest rate at which commercial banks and other financial institutions borrow or lend funds on an overnight basis to meet the... View the full answer