(April 2): Australia’s central bank will increase the price of all new open market operation repos and introduce a new seven-day tenor at its weekly auctions as it transitions to an “ample reserves” system for liquidity management, a senior official said on Wednesday.

The price of all new repos will double to 10 basis points over the cash rate target, Reserve Bank assistant governor Chris Kent said in a speech in Sydney. Auctions will continue to take place once a week, generally on a Wednesday morning, he said.

“An OMO rate of 10 basis points over the cash rate target remains consistent with the board’s desired degree of monetary control. Under this higher OMO price, we expect the cash rate will trade within a reasonable range of the cash rate target,” Kent said.

He reiterated that the changes have no implications for the RBA’s monetary policy stance. On Tuesday, the central bank left its cash rate at 4.1% and steered clear of providing guidance for its next policy meeting in May.

Kent last year flagged the RBA’s plans to shift to an “ample reserves” framework to ensure sufficient liquidity is available to keep the financial system running smoothly as billions of dollars of bonds it bought during the pandemic fall due.

The RBA’s balance sheet shrunk by about 45% in the year to June 2024, according to its annual report. On Wednesday, Kent said that while the RBA’s reserves are still elevated, they will continue to decline gradually over time.

The RBA’s transition to “ample reserves” reflects a fundamental shift in how central banks implement monetary policy. They’re trying to strike a balance between operating with a smaller balance sheet and reducing their footprint in financial markets, while avoiding liquidity shortages that may hurt stability and impair monetary transmission.

Responding to a question after his speech, Kent summarised the three key principles that the RBA considered for its ample reserves system.

“First and foremost, it’s about monetary control, but we also as much as we can want to encourage private market activity,” he said. “That’s to ensure that the financial system is as healthy as it can be and we take on no more risk on our balance sheet than is necessary.”

The increase in the OMO repo price, the introduction of a shorter seven-day tenor and a weekly auction, not daily, will encourage banks that have a need for liquidity to go to other lenders and private markets, Kent said.

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