- The cash rate is the rate at which banks borrow from the Overnight Money Market
- The O.M.M comprises of banks with a Exchange Settlement Account with the RBA as a mean by which providers of payment services (banks) settle obligations that accrue during the clearing process.
What is the Exchange Settlement Account
- Is used for transactions between banks on behalf of clients who want inter-bank transfers.
The Clearing Process
- The Process of transferring money between banks
- In the clearing process, Banks use fudns from the Exchange Settlement Account.
- They accrue obligations (Debt) during this process, which they then must pay off at the end of the night.
how the Cash Rate Influences
- Depending on the day banks might not have enough money to pay back their Obligations
- Thus, they have to borrow it from the Overnight Money Market.
- Borrowing from banks with a surplus funds Exchange Settlement Account.
- Banks get a surplus funds from having a surplus of Incoming Transactions.
- #ask_davis When a bank receives a transaction it goes straight into their Exchange Settlement Account
- Borrowing from banks with a surplus funds Exchange Settlement Account.
- When the Cash Rate is high banks with a surplus receive more interest, banks with a deficit have to pay a higher Interest rate on their Obligations.
Cash Rate