It’s now looking as though we are “enjoying” a defacto interest rate rise of around 0.20% to 0.40% judging by where short term money market rates have settled above 6.80% to 7%.

This follows the Reserve Bank bringing its liquidity injections into the daily bank bill market (which forms the core of the Australian financial system) back to where it was before the credit freeze started appearing two months ago tomorrow.

Last Friday the RBA left $1.147 billion in its Exchange Settlement Accounts (at the request of the banks). That was after it had left the system basically square on the day, neither draining or injecting liquidity ahead of the weekend.

That was the lowest amount left in the ESA since the squeeze hit on 10 August. But it was nudged up to around $1.4 billion today after the banks requested a bit more liquidity be left in the system.

Bank bill yields firmed Monday to around 6.92% but eased back to 6.88% for the 90 day bill. Based on the forward cost of money as shown by the overnight swap rate, there’s around a margin of 0.35% over cash.

At the same time the Australian dollar fell around a cent in 12 hours, down from the 23 year high of 90.33 USc in New York as the US dollar rose and had its best day in a month against the euro. It was trading around 89.35 USc just before noon today.