Is the RBA tossing money at banks so they don’t stiff customers on rate rises?

by | May 3, 2022 | Lobbyland

How good are banks! The Reserve Bank of Australia is lending to the big banks at 0.1% while paying them 0.25% on deposit. What a deal!

Perhaps this will slow the speed at which they race to pass on today’s 0.25% rate rise to their customers. Yes, the central bank upped its target rate to 0.35% today; it also decided to increase the interest rates on the money that banks have put into the RBA’s ‘exchange settlement accounts’ to 0.25%.

These ESAs are used by financial institutions to make payments to customers or other institutions. Since 2020, ESAs have been receiving a far larger amount of funds put into them than ever before. 

The RBA hasn’t been paying any interest on the money deposited into these accounts but has this afternoon decided on a 0.25% interest rate. There is, at last count, $406 billion in these accounts.

At the same time, the RBA is lending at 0.1% on $188 billion borrowed by commercial banks which is not repayable till 2023 and 2024. What a racket.

Callum Foote is a journalist and Revolving Doors editor for Michael West Media. He has studied the impact of undue corporate influence over Australian policy decisions and the impact this has on popular interests.

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