Business
The death of the Reserve Bank overnight cash rate – The Australian Financial Review
For decades, the Reserve Bank controlled interest rates through an overnight target rate, now it’s a rate that no longer matters. Here’s what does.
The following day, Westpac has to repay the money it borrowed overnight.
If it doesnt have the funds on hand it can go into the short-term money market and borrow money for a one-month term by issuing a 30-day bank bill, at a rate typically slightly higher than the cash rate.
A likely provider of the funds is ANZ, which has $500,000 on deposit that it needs to deploy to return some interest.
Over time, Westpac will gradually refinance most of that bank bill with more stable funds such as proceeds…
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