official cash rate?

Question

wat is an official cash rate? and wat are the machanism for it? any diagram assuming the mechanism of the cash rate? wat is it?

why a central bank raises its cash rate|

Answer 1

The cash rate is the Australian name for what is called the Fed funds rate in the US. Bank must settle accounts at the end of each business day, and since on some days they make more loans than the recieve deposits and on other days the reverse, they reach balance by borrowing from or lending to other banks in the overnight money market. The cash/fed funds rate is the interest rate charged on these loans. Central banks intervene in this market both to to stabilize the rate so it will not vary too much from day to day, and to conduct monetary policy by adding to or subtraction from the amount of money available for loans, which controls the overnight rate.