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Monetary policy, cash rates and interest rates
According to a recent survey(#), over one-third of Australians, those either with or without a mortgage, don’t check the cash rate. The most common reasons for this were as follows: had no interest in checking the cash rate (30%); don’t see the relevance (28%); or, don’t know what it is (24%).
In addition to this, 68% of Australians with a mortgage, haven’t 'stress-tested' their home loan. With this in mind, recent estimates have highlighted the fact that: 1 in 3 households would experience mortgage stress if there were a 0.5% (i.e. 50 basis points) increase in the current interest rates; and, 1 in 2 households would experience mortgage stress if there were a 2% (i.e. 200 basis points) increase in the current interest rates.
In this animation, we illustrate the important relationship between monetary policy, cash rates and interest rates. This is not only relevant for mortgages – it’s also relevant regarding other debts, as well as assets.