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In This Video:

00:16 How interest rates and the RBA work
00:33 Where do the banks get their interest rates from?
01:12 How are RBA decisions made?

G’day, my name is Nic Griffith. Now if you’re interested in Property Investment Mentors, Property Investment Strategies, or looking for Property Investment advice, you’ve come to the right place. Today, I just want to spend a minute or so talking about interest rates and the importance of understanding where interest rates come from.

How interest rates and the RBA work

Understanding interest rates can be a major fear for many property investors. If you can understand how interest rates are determined, you can then set yourself up to make accurate decisions about what interest rates are going to do, which will then inform your decisions when it comes to property investing.

Where do the banks get their interest rates from?

So interest rates, we all know what the banks do, but where do the banks get their rates from? We have the reserve bank of Australia, The Reserve Bank of Australia are actually the ones who set the interest rate. They then pass on that rate, which is a cash rate, to the banks who then pass on that rate to us – you or me, the borrowers, as the variable rate.

Often it is around double what the cash rate is. If there is a cut in the Reserve Bank rate, they don’t always pass on that cut to the banks, and then the banks then blame other things like overseas funding for their reasons for not passing on that saving to us.

How are RBA decisions made?

Good on the banks. The most important thing to understand is how those RBA decisions are made. Now they’re informed by the ‘Independent Board’, that was formed in the 1990’s. Thee Independent Board’s sole job is to keep inflation between 2% and 3%. So, in order to do
that they then influence the rates fro the RBA.

Therefore, during the GFC, it wasn’t Kevin Rudd whose $900 saved us from the suffering of the GFC, it was ‘The Independent Board’ and their keeping of the interest rates between 2% and 3%.

Additionally, with interest rates we have variable, and fixed. I’ll talk about those in a whole separate webinar. Standby.

That’s all for today’s quick tips, however, if you’d like more information, our website is for further information for what we can provide as far as education and training goes, and what our services are, thank you.

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