Reserve Bank's role on interest rates

 

The increase in the cash rate announced today by the Reserve Bank should be no surprise to anyone. The rate has been too low for far too long. Lifting it to 0.35% makes little difference. A rate of0.1% sent a message that money is worthless. With positive interest rates – even low levels such as 5 or 6% people are able to judge the value of money but at the miniscule rate it has been for years, governments have been able to maintain an illusion. Now we know that all is not well. Banks and other lenders don’t set their rates according to the Reserve Bank figure – they charge what they can after paying to attract cash and working out their costs plus their profit distribution requirements. Banks will raise rates whenever they feel like it. The world financial system has been in chaos ever since economists persuaded Governments to go off the gold standard as a means of backing currency and establishing exchange rates.

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