Comment: Industry and adversaries in a stew over rates
Somewhere along the way, the role and influence of the capital market in shaping and setting monetary policy is lost in the angst-laden debates that are a hallmark of modern Australian banking.Monetary policy more than anything is the price level faced by borrowers entering into free contracts (usually) with moneylenders.The lenders interfacing with household and business sectors set a price on borrowing informed, let's face it, by an array of considerations.As Australia's banks have demonstrated this week, it's the interest rates faced and debt obligations paid (or missed) that define monetary policy.They succeeded also at injecting a 'cost of funds in global markets' overlay into the debate, one with thin evidence to sustain it.To their credit the RBA got the cash rate policy call correct this week.Just imagine inflation busting three per cent aiming to nestle around four or more.?The RBA would crank up its unemployment creation and business destruction machine - that's a further reality of monetary policy.Amid the confusion of the opposite policy problem of deflation, banks are acting as any rational observer might anticipate, maximising profits.