The policy rate that neither speeds up nor slows down the economy. It cannot be observed directly; central banks estimate it.
Economists call it r-star when expressed in real terms. Estimates for Australia and the US are typically in a range of about 0.5 to 1.5% real, or roughly 3 to 4% nominal with inflation at target, and they change over time.
Why it matters
Whether policy is tight or loose depends on where the policy rate sits relative to neutral. Because neutral is uncertain, central banks move cautiously and watch the data, rather than aiming at a known level.
