Loading ...The RBA held its cash rate on Tuesday. Rates worldwide leapt Tuesday night here, TuesDay elsewhere, vindicating her decision. CBs don’t control rates, except maybe a bit at the short end. Cutting their rates as the market pushes real rates higher would make them look even more stupid.
I wonder if most people think that a bond is like a term deposit? It’s the opposite. With a TD the bank offers (dictates to) me a rate for a fixed period. It’s my choice whether to accept or not. Bonds are sold at auction, the interest rate is set by the me, the purchaser, i.e. the market. My current TD’s taken out only a month ago, are at 4.1% for 12 months. The RBA’s “cash” rate, whatever that really means, is and was 3.85%, so even my bank had to dictate a higher rate that the CB notionally stipulates. Cutting to 3.6%, the expected move by 100% of the experts and economists, would just have been suicide when the banks are already having to pay half a percent more in the market.