3 ms·
The interest rate I'm referring to is the cash rate, ie. the rate at which banks lend to each other. That's the interest rate central banks set and defend using
by dools 3y ago
The interest rate I'm referring to is the cash rate, ie. the rate at which banks lend to each other. That's the interest rate central banks set and defend using the sale and purchase of bonds on the secondary market.
If they didn't prop it up, it would tend to zero because banks have so much liquidity.
- kazinator 3y agoWhy would a bank lend money to another bank for nothing, instead of the alternative course of action of not lending?
- dools 3y agoThe lowest recorded interbank lending rate in Australia was 0.03% https://tradingeconomics.com/australia/interbank-rate https://tradingeconomics.com/australia/interbank-rate If you're lending someone a billion dollars, and your labour cost for doing the lending is in the hundreds (maybe thousands?) of dollars, then interest rates quickly approach 0. Sure, no-one would do it for literally 0 dollars, but the rates at which banks lend to each other when there is a ZIRP policy at the central bank (including 0% paid on reserves) is negligible as far as the real economy is concerned. Like the "cost of capital" in that case for issuing a mortgage has nothing to do with the interbank lending rate.
- deleted 3y ago[deleted]