Economic theory tells us that the real interest rate is the price that equates the supply of savings with the demand for funds aimed at financing investment. Supply and demand, in turn, are determined by factors such the preference of households to smooth consumption across time and the productivity of capital.
Finding the balance between credit-based and risk-free benchmarks While we expect that BBSW will remain a robust benchmark, it is important for market participants to ask whether BBSW is the most appropriate benchmark for their financial contracts. This is particularly worth considering in the light of the transition that is taking place away from LIBOR towards risk-free rates.