Christopher Kent: Changes to the Reserve Bank of Australia's open market operations

Remarks by Mr Christopher Kent, Assistant Governor (Financial Markets) of the Reserve Bank of Australia, to the Australian Financial Markets Association, Sydney, 22 February 2022.

The views expressed in this speech are those of the speaker and not the view of the BIS.

In 2020, the Reserve Bank adjusted its open market operations (OMO) in response to changing conditions in money markets, including those brought about by the Bank's monetary policy actions. It is now time to make further changes to OMO to ensure that the benefits of these operations are preserved as conditions evolve over time. The purpose of my talk today is to outline our plans for OMO and the reasoning behind them.

Background

At the onset of the pandemic, extreme uncertainty and the prospect of a significant decline in economic activity led to dislocation in global financial markets and a surge in the demand for liquidity. The Reserve Bank met that demand with an expansion in our OMO, increasing the size and lengthening the terms of the repurchase operations (repos) (Graph 1). The Bank also moved away from auctions in which the repo rate was determined by banks bidding for fixed quantities of liquidity. Instead, since April 2020, the Bank has been filling bids for liquidity (at the Bank's preferred terms) that are at or above a predefined hurdle rate (currently the cash rate target). In this way, the OMO repo rates are fixed and the amounts dealt at OMO have been determined by the demand for this source of liquidity (Graph 2). This approach has been effective at addressing some pronounced shifts in demand.