The best interest rate policy is zero, which is the natural rate of interested in a floating exchange rate economy.
Fiscal policy is the only tool through which equity can be managed. Monetary policy is pointless.
Fiscal policy is the only tool through which equity can be managed. Monetary policy is pointless.
A dollar today is always going to be worth more than a dollar tomorrow.
A dollar you own today has zero risk of not being delivered tomorrow.
You can invest that dollar one day sooner.
If there’s a general expectation of inflation, it exchanges for more today than tomorrow.
Think of a dollar today as one commodity and a dollar tomorrow as a separate and distinct one. There is a difference in our marginal preferences and that is where the interest rate comes from.
Just as both of us can be made better off trading blueberries and strawberries without actually creating anything new, the difference in our inter temporal marginal preference will reward the lender with a return even in the absence of risk.
If they didn't prop it up, it would tend to zero because banks have so much liquidity.
https://tradingeconomics.com/australia/interbank-rate
If you're lending someone a billion dollars, and your labour cost for doing the lending is in the hundreds (maybe thousands?) of dollars, then interest rates quickly approach 0.
Sure, no-one would do it for literally 0 dollars, but the rates at which banks lend to each other when there is a ZIRP policy at the central bank (including 0% paid on reserves) is negligible as far as the real economy is concerned.
Like the "cost of capital" in that case for issuing a mortgage has nothing to do with the interbank lending rate.