Should banks now repay their multibillion-dollar RBA subsidy?

Money markets have very aggressive – almost unbelievable – pricing of a 2.5 per cent cash rate by December 2022 and 3.4 per cent by late 2023. Yet even if the cash rate rises more moderately, as market economists expect, the subsidy would be worth several billion dollars.The banks were not eligible for JobKeeper, but this is their version of overcompensation.

Sub-2 per cent fixed rate mortgages were available as a result. The cheap money contributed to a surge in house prices and a strong rebound in the economy as the wealth effect encouraged home owners to spend. There was a less noticeable uptick in small business lending. Nevertheless, as the RBA cash rate rises – likely in May – the central bank will be on a losing carry trade against the commercial banks.

One option for the RBA – perhaps with some prodding from the government after the election – is to ask the banks to repay early the $188 billion term funding. The RBA would not be able to pay a lower rate on exchange settlement balances because this would interfere with the transmission mechanism of monetary policy. The banks would refuse to park their excess liquidity at the RBA because they could earn a higher rate elsewhere.Banks argue they passed on the cheap TFF funds to households and small business. That is true of the money that was lent, but not the excess liquidity parked at the RBA.

Why should they offer to repay more than the agreed amount. It was a semi stimulus package which flowed through to consumers.

Loans Loans Latest News, Loans Loans Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

‘Difficult balancing act’: Economists say case for pre-election rate rise strengtheningTop economists say there is enough data to justify lifting interest rates before the May 21 election, despite the political heat the RBA would take on as a result.
Source: brisbanetimes - 🏆 13. / 67 Read more »

It’s elementary. Case closed for RBA election rate hikeNew inflation figures are the smoking gun, signed confession and CCTV footage the RBA needs to start lifting interest rates at its pre-election meeting. swrighteconomy And is a rate rise gonna reign in the “non discretionary” prices where rises have been highest? Raising rates now will not beat inflation unless you think people will reduce their tomato consumption. Wright should’ve explained how he thinks rate rise will help households.
Source: smh - 🏆 6. / 80 Read more »

It’s elementary. Case closed for RBA election rate hikeNew inflation figures are the smoking gun, signed confession and CCTV footage the RBA needs to start lifting interest rates at its pre-election meeting.
Source: brisbanetimes - 🏆 13. / 67 Read more »

It’s elementary. Case closed for RBA election rate hikeWhen the RBA board meets on Tuesday, there can only be one recommendation from governor Philip Lowe. Rates have to start going up now, writes Shane Wright | OPINION interestrates inflation Thanks Shane, has to be .5% next week, anything less is a joke.
Source: theage - 🏆 8. / 77 Read more »