The Reserve Bank of Australia (RBA) has introduced an updated system for monetary policy implementation, known as the ‘ample reserves with full allotment’ approach. This system allows eligible counterparties to borrow as many reserves as they need during open market operations. The RBA has provided important updates on this system, focusing on the configuration of its open market operations and the role of the overnight standing facility.
These facilities are essential in supplying the reserves necessary to maintain the cash rate close to its target. During the system’s transition to an ample level of reserves, some market participants might experience increased demand for liquidity. This situation may lead them to borrow reserves in private money markets from other participants with a surplus. If these participants are unable to find suitable liquidity terms in private markets or through weekly open market operations, they are encouraged to use the overnight standing facility. This usage supports the implementation of monetary policy within the ample reserves system.
The RBA, along with the Australian Prudential Regulation Authority (APRA), views the use of the overnight standing facility by banks as part of normal liquidity management activities. Both authorities are comfortable with banks using the facility as needed and will work alongside them to ensure they understand its role and can incorporate it smoothly into their liquidity management practices.
For more information, the RBA points to a recent speech by RBA Assistant Governor, Financial Markets, Christopher Kent, and encourages visiting their standing liquidity facilities webpage.
