The Reserve Bank left interest rates alone this morning, leaving the cash rate at 6.50%. No one seriously thought there would be another rise, the bank doesn’t lift rates two months in a row, never mind in an election year.

But some of those commentators who reckon yesterday’s strong national accounts growth figures and rising wages have increased the risk of another rate rise, haven’t been looking at what is going on in the money market.

The credit freeze may have eased a touch but the cost of short term money is rising. So much so that in the past month we have effectively seen another 0.25% rate rise imposed on banks and other financial institutions using the bill market to fund their everyday needs (as most do).

The money market is no longer the glamour area of business and financial reporting and analysis, not with all the private equity deals, the massive resources boom and the flood of super money into the market. But those old timers who watch all markets have noted something that the ANZ Bank told the world about last Thursday in its trading update: that the cost of money in short term money markets has risen around 0.25% since the credit freeze started around August 10.

A look at market rates since the last RBA board meeting, when official rates were put up 0.25%, shows that the rise in yields on 30, 90 and 180 bank bills has been remorseless, touching a number of 11-year records to the point where yesterday, they were in sight of 7%. The last time we had a rate of 7% for bank bills was in August, 1996.

The rising rates on bank bills, which are, next to Government bonds, the securest and most liquid investment there is, means that there is a growing risk attached to lending money, even to the likes of our big banks.

Remember the old adage, the higher the reward, the higher the risk. As illogical as it might seem given the recovering stockmarket and the booming economy, the hardest nuts in Australian business are worried about something and can’t be reassured. That’s why they are pushing up their price of the one thing they can control: the cost of money.

The RBA has been buying bank bills from the likes of the ANZ (and preferring 90 and 180 paper) with its ears pinned back to try and keep a lid on rates and to ensure the system is flush with liquidity.

Despite this buying (via the repurchase arrangements) bank bill yields have continued to rise to where they were yesterday 6.93% for 30 day bills (6.58% on the afternoon of August 8 when the RBA lifted rates), 6.95% for 90 day paper (6.65%) and 6.99% for 180 day bills (6.74%). The upward trend is defying even a central banker’s attempts to be transparent and reassure the market.

The ANZ warned that this would have to be passed on to borrowers, especially mortgage holders, on top of any rate rise from the RBA. If it goes on for much longer, it is only a matter of time.