Doing the Libor twist: The vice and virtue of interest rate manipulation: Kohler
4.7.12, Alan Kohler
The Reserve Bank of Australia decided yesterday not to manipulate the overnight cash interest rate. Last month, though, it did engage in price-fixing.
In London, the head of Barclays Bank, Bob Diamond, has been forced to resign because his bank has been manipulating another interest rate, Libor. In fact the Libor-fixing scandal has shaken the whole of banking to its core, again.
Is there a difference between these two things? Of course: central banks are government bodies that manipulate interest rates for the purest of motives, don’t they? They control inflation and maintain full employment by artificially fixing prices in the cash market, which is supposed to send a signal to the banks to adjust their lending and deposit rates. We don’t mind that, because… well, we’ve just gotten used to it.