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Cash Rate and Bank funding - Essay Example

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FINANCE Executive Summary Cash rate is a tool for regulating the monetary policy in Australia by RBA. It is used to control the rise in inflation rates in the country. Among other interest rates, standard variable housing loan rates are set by major banks in accordance with the changes in the target cash rate set by RBA…

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Cash Rate and Bank funding

Long term debt funding is a relatively expensive source of funding than equity finding. This resulted in the rise in funding costs for major banks and consequently they were forced to increase their housing loan interest rates relatively more than the rise in cash. RBA have also accepted this fact and considers the existing spread as new normal standard spread. Table of Contents Table of Contents 3 Cash Rate – An Overview 4 Major Banks’ Funding and Costs of Funding 5 Pricing for Risk and Variable Housing Loan Rates set by Banks 6 Standard Variable Housing Lending Rates and Spreads 8 Conclusion 10 References 11 Bibliography 12 Cash Rate – An Overview Reserve Bank of Australia (RBA) uses cash rate as a tool to control the pressure of inflation in Australia. RBA targets to keep the inflation rate in and around 2% to 3%. This refers to the monetary policy followed by RBA. RBA’s monetary policy also includes curbing unemployment rate and assuring a stable economic growth of the country as its other objectives. When the inflation rate goes beyond the target of RBA, the cash rate is enhanced. ...
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