What is the cash rate?
- By Book Keeping Pros
- Sources checked 16 Oct 2026
Definition
The cash rate is the interest rate charged on overnight loans made in the money market. The Reserve Bank of Australia, which is responsible for monetary policy, sets it and says it has a bearing on other interest rates across the economy. It is not the rate a business pays on a loan or earns on a bank account.
A business does not borrow or lend at the cash rate, so the cash rate has no account in its books and a change to it is not entered as such. The interest the books do record is the amount on the business's own loan and bank statements.
Fixed interest rate and variable interest rate are terms for the rate on a particular loan, while the cash rate belongs to the money market. For any loan the business holds, the rate to use in the books, the budget or the cash flow forecast comes from the loan agreement and the lender's notices and statements.
In Australia
The Reserve Bank of Australia (RBA) says it has responsibility for monetary policy in Australia, and that monetary policy involves setting the cash rate, its name for the interest rate charged on overnight money market loans.
The RBA explains that the cash rate has an influence on the other interest rates across the economy, and through them how borrowers and lenders behave, how much economic activity there is and, in the end, inflation.
It says it is the Monetary Policy Board that sets monetary policy, and that the law gives the Bank a duty, when it does so, to contribute to a stable currency, to full employment and to the economic welfare and prosperity of Australians.
Common mistakes
- Treating the cash rate as the interest rate on the business's own loan or overdraft.
- Recording interest from a rate heard in the news instead of the amount on the lender's statement.
Related terms
Related service
Management and cash-flow reports
Monthly reports that show where the business stands.
Sources
- Monetary Policy
Reserve Bank of Australia. Current at 14 September 2026, released 14 September 2026. Checked 16 October 2026.
Source: Reserve Bank of Australia 2026 Licence: CC BY 4.0.