Which interest rate applies to overnight loans in the short-term market?

The cash rate refers to the interest rate charged on overnight loans between banks in the money market, which is a key tool used by central banks to influence monetary policy. This rate is critical because it affects other interest rates across the economy, including those for personal loans, mortgages, and savings. When the central bank adjusts the cash rate, it can either stimulate economic activity by lowering borrowing costs or cool down inflation by raising interest rates. Since overnight loans are typically settled the next day, the cash rate is specifically relevant to this very short-term borrowing scenario.

Other options, while they describe various types of interest rates, do not specifically pertain to overnight lending in the short-term market. The market rate could encompass a broader array of interest rates present in the financial markets, and benchmark rate typically refers to a standard rate against which other rates are measured, not limited to overnight transactions. Loan rate generally refers to the interest rate on consumer or business loans, which does not capture the specific nature of short-term lending between banks. Thus, the cash rate is the most accurate choice for the interest rate that applies to overnight loans in the short-term market.