Interest rates are the price we all pay to borrow money. Depending on economic conditions, rates can stay the same for long periods or go up or down. When rates vary, the amount you have to repay each month on your mortgage or loans can change.

The interest rate you pay the bank is determined to a lesser or greater extent by the underlying rate of interest set by the Reserve Bank of Australia or RBA. This underlying rate then influences the rates set by the bank or other lender you‘re borrowing money or getting credit from.

However, the cost of some ‘short-term borrowing’ such as using a credit card for example, is based more on what the lender thinks they can get away with, rather than any small changes in the underlying interest rate set by the RBA.

But, while interest rates are what it costs us to borrow money, to the government they’re a really important weapon in controlling what’s happening in the Australian economy, and particularly the amount of money that’s circulating within it.

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