The overnight rate isn’t a figure you’ll see on your bank statement, but its ripple effects touch almost every corner of the Australian economy. In 2025, as the Reserve Bank of Australia (RBA) navigates inflation, employment, and global uncertainty, the overnight rate has become a hot topic. But what exactly is it—and why does it matter for your wallet?
The overnight rate—sometimes called the cash rate target—is the interest rate at which Australian banks lend money to each other on an overnight basis. Each day, banks with surplus funds lend to those with shortfalls, helping everyone meet regulatory requirements. The RBA sets a target for this rate, using it as its main lever to steer economic activity.
In practice, when the RBA changes the overnight rate, it signals a broader intent: to either stimulate the economy (by lowering rates) or cool things down (by raising them). Changes flow through to mortgage rates, business loans, savings accounts, and even the value of the Aussie dollar.
After a whirlwind of rate hikes in 2022–2023 to curb post-pandemic inflation, the RBA adopted a more cautious approach in late 2024. As of June 2025, the overnight rate target sits at 4.10%—unchanged since late 2024. But that stability belies high stakes:
For example, in April 2025, speculation about a potential rate cut was dampened by stronger-than-expected jobs data, highlighting just how sensitive markets are to overnight rate signals.
While the overnight rate may seem like an abstract policy tool, its real-world impacts are immediate and wide-ranging:
For instance, in early 2025, several major banks increased their savings account rates to 4.50%—the highest since 2012—responding directly to the steady overnight rate. At the same time, mortgage stress surveys showed nearly one in four borrowers had cut discretionary spending to keep up with repayments.
Looking forward, the RBA has signaled a “wait and see” approach, closely monitoring inflation, wage growth, and global trends. Economists are split on the timing of the next move: some expect a cut in late 2025 if inflation keeps easing, while others warn that persistent cost-of-living pressures could delay relief.
Key things to watch in the coming months:
Staying informed about the overnight rate helps Australians anticipate shifts in borrowing costs, make smarter investment choices, and plan for changing economic tides.