Christopher Kent: The Reserve Bank of Australia's monetary policy implementation system - some important updates

Speech by Mr Christopher Kent, Assistant Governor (Financial Markets) of the Reserve Bank of Australia, at the KangaNews Debt Capital Markets Summit, Sydney, 2 April 2025.

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

Introduction

I would like to thank KangaNews for the opportunity to discuss some important updates to the system for monetary policy implementation in Australia. The Reserve Bank Board discussed this late last year, and we are now ready to announce operational changes to our Open Market Operations (OMOs) that will support the transition to ample reserves.

Monetary policy implementation is at the core of the financial system's plumbing. It is how we give effect to changes in the cash rate target, influence other money market rates and provide liquidity to the banking system. Importantly, it enables us to conduct monetary policy in a way that best contributes to both price stability and full employment.

The RBA achieves this by providing banks access to Exchange Settlement (ES) balances – otherwise known as reserves. Banks use these funds to settle payments with other banks and the RBA. Banks also hold reserves for precautionary and regulatory purposes. In response to various price signals, and to help manage their reserves and deal with their funding needs, banks borrow and lend reserves in money markets. These transactions underpin key interest rates in the Australian economy – such as the cash rate and short-term money market rates like bank bill swap rates.

An effective monetary policy implementation system is critical for all market participants. It aids in the smooth transmission of monetary policy, supports good functioning of money markets and hence other key financial markets, and encourages greater resilience in the financial system.

In March last year, the Reserve Bank Board endorsed the new system for implementing monetary policy. Banks' demand for reserves would be satisfied in full at our OMOs, at a price near the cash rate target, using full allotment repurchase agreement (repo) auctions. We call this system 'ample reserves with full allotment' because it supplies as many reserves as banks demand at our OMOs.