The Reserve Bank pays interest on banks' reserve deposits,called exchange settlement accounts,equal to the cash rate less 0.25 per cent.This puts a ________ on the cash rate as it can't fall more than ________ below the cash rate.

Question

Quizplus · Accepted Answer

The interest paid on exchange settlement accounts acts as a floor on the cash rate, as banks would not lend at a rate lower than what they can earn on their reserves, which is the cash rate minus 0.25%.

The Reserve Bank Pays Interest on Banks' Reserve Deposits,called Exchange