Kiss
Keep It Simple Stupid
The cash rate is that rate of interest that applies to the short term money market.
Think of it in this rather crude way:
You are a dodgy loan shark and you lend other school students money so they can buy two pies at lunch time instead of one (may be a cause of obesity- thats another matter)
Every now and then, you lend more than you have so you borrow off your parents overnight until you can collect a debt owing to you.
The rate of interest that your parents lend to you at is the cash rate, obviously if that goes up it makes it more expensive for you to borrow- what are you going to do to the price (interest rate) that you lend to other people at. Increase it!
Now apply it to the real world.
You are a bank and your parents are the regulatory RBA (how appropriate)
Due to inflation targeting and other macroeconomic reasons, the RBA will change the cash rate to alter the interest rate.
The reason for movements in the cash rate over the last two years is due to inflation targeting (keeping inflation in that 2-3% bracket). Talk about the low inflationary environment Australia has had- that says why the cash rate has been quite constant. It really hasn't changed much in two years.
Hooroo
