Money for Nothing

Does the RBA Cash Rate Impact Mortgage Interest Rates?

Caveat
This analysis focuses exclusively on primary transactions—the creation of deposits and loans, including mortgages. While banks may leverage these instruments after origination (e.g. through securitisation or funding strategies), such actions are optional and not fundamental to the initial creation of credit. The purpose here is to isolate the real, mechanical processes underpinning lending.

Deposits and Loans
When a bank issues a loan, it simultaneously creates a matching deposit using keystrokes—a simple accounting entry that expands both sides of its balance sheet. Critically, the bank does not lend out pre-existing deposits or require prior access to reserves or funding. The deposit is created from nothing, in the act of lending.

Authoritative Sources
Reserve Bank of Australia, Money in the Australian Economy (September 2018):
“Deposits can also be created when financial intermediaries make loans … The process of extending loans will therefore typically create deposits at a system-wide level.”

RBA Bulletin
Christopher Kent, RBA Assistant Governor, “Money – Born of Credit?” (September 2018):

RBA Speech
“Money can be created, however, when financial intermediaries make loans… When a bank extends a loan … the bank may credit the deposit account of the borrower … In either case, the loaned funds will tend to find their way into a deposit somewhere in the banking system.”

Matt Comyn, CBA CEO, 2022 AGM:
“We also do create deposits in the system, we expand money supply when we lend money.”
Watch on YouTube:    • BANKS CREATE LOANS FROM NOTHING  

What Is the RBA Cash Rate?
The RBA Cash Rate is the interest rate on unsecured overnight loans between banks, set by the Reserve Bank of Australia to maintain liquidity and stability in the interbank market.

It functions as both:
A cost, when banks borrow overnight funds.
A benefit, when banks lend excess settlement funds or hold balances with the RBA.

Importantly, the cash rate operates only in the interbank settlement layer and does not affect the act of creating deposits or loans.

What Linkage Does the Cash Rate Have to Loans and Mortgages?
There is no direct, mechanical linkage between the RBA Cash Rate and the creation or pricing of primary loans or mortgages.

Clarification:
Loans and deposits are created simultaneously—no external funding is required.
The cash rate applies only to interbank liquidity.

Mortgage pricing is a commercial decision, influenced by:
Profit margins
Competition
Credit risk

The RBA Cash Rate has no operational role in loan or mortgage creation. Any correlation is strategic, not structural.

Conclusion
The belief that the RBA Cash Rate determines mortgage rates misunderstands the mechanics of credit creation. Banks do not lend deposits or borrowed reserves. The RBA Cash Rate affects interbank liquidity, not loan issuance.

If banks create money when they lend, and no structural cost is imposed by the RBA, then who really determines the price of money—and on what terms?

This isn't theoretical—it shows that pricing power lies with commercial banks, not the central bank.

Further, this power exists within a concentrated sector. In the 2023 ANZ–Suncorp merger ruling, the ACCC stated:

“…there is an ‘accommodative and synchronised approach…between the major banks, which was not unexpected and is enabled by the oligopoly market…”
(ACCC, ANZ/Suncorp Merger Determination, 2023)

Mortgage pricing, and its burden on households, appears driven more by oligopoly strategy than by central bank mandates. This demands serious rethinking of competition, accountability, and the actual levers of monetary power in Australia.