RBA Rate Cuts and What it Means for You
The Reserve Bank of Australia (RBA) plays a crucial role in Australia’s fiscal markets. When the RBA announces a rate cut, it doesn’t just affect mortgage repayments. It ripples through financial markets, alters how lenders fund loans, and influences how they price different types of lending.
Let’s break down how this works and what it means for you as a borrower.
🏦 The RBA Cash Rate and Why It Matters
The cash rate is the interest rate on overnight loans between banks. It serves as a benchmark for many other interest rates in the economy as this is generally the predominant source of funds for the Big 4 Banks of Australia, being CBA, ANZ, WBC and NAB. When the RBA cuts this rate, it usually signals a softer economic outlook and a push to stimulate borrowing, investment, and spending through the reduction of the cost of funds.
Most banks and lenders respond by lowering their own variable interest rates, making mortgages, personal loans, and business finance more affordable. They are generally more driven by their competitors then pricing adjustments, so there is generally a lag in these reductions as opposed to RBA rate increases where the pricing adjustment is instant. But there’s more going on behind the scenes in how banks set these rates—and where they get their money from.
💰 How Banks Fund Loans: The Role of Bonds and Wholesale Markets
Lenders source funds through a variety of methods. There are two key sources:
Customer Deposits/Warehouse Finance – A bank offers transactional banking and customer deposit services which generally track close to the RBA rate. Non-bank lenders do not generally offer transactional banking and are generally funded by other lenders, or private equity fund backed etc. An example of this can be NAB funding Liberty who then funds Moula, with a trickling effect on the variable rates offered by each of these financial institutions when the RBA rate moves.
Wholesale Funding – This includes:
Domestic and international bond issuance
Securitisation (bundling and selling loan portfolios)
Bank Bill Swap Rate (BBSY) - With resulting BBSY loans offered at the bank matching these market instruments.
When the RBA cuts the cash rate, the cost of wholesale funding often falls—but not always proportionally or immediately.
📉 BBSY and Commercial Loans: A Closer Look
For many commercial, business, and some development loans, pricing is often tied to the Bank Bill Swap Rate (BBSY)—a market-determined rate that reflects what banks charge each other for short-term loans. BBSY is generally higher than the RBA cash rate and can move independently based on market conditions.
A rate cut by the RBA can lead to a drop in BBSY, but this depends on broader liquidity conditions and investor sentiment. When it does fall, borrowers with BBSY-linked loans may benefit from reduced interest expenses—but the flow-through can be less predictable than with retail variable rates.
🧩 What This Means for Borrowers
Residential borrowers with variable rate loans usually see reductions in their interest rates within weeks of an RBA cut—though the full cut isn't always passed on.
Business borrowers with BBSY-linked facilities may see a more delayed or partial impact, depending on:
The lender’s cost of funds
Bond market dynamics
Credit risk premiums
Some lenders may even be more competitive following a cut, trying to grow market share by offering sharper BBSY margins or discounts on fixed rates funded via cheaper bonds.
✅ Key Takeaways
RBA rate cuts tend to lower borrowing costs, but the impact varies across loan types.
Lenders fund loans through a mix of deposits and wholesale markets like bond issuance.
Rate Cuts represent a softer economic outlook and is a measure to stimulate economic spending & growth
Understanding how your loan is structured can help you make smarter financing decisions.
At Loan Central Hub, we monitor these economic shifts closely so we can advise you on how to time your borrowing, negotiate better rates, or restructure your lending as markets move.
Need to review your current loans in light of a possible rate cut? Get in touch—we’ll help you navigate your options with confidence.
