RBA: Ample Reserves Still Exceed Demand Amid Shift to New Liquidity System

Australia's central bank, the Reserve Bank of Australia (RBA), said that despite a shift to a new liquidity system, reserves in the financial system remain above underlying demand. In a speech on the ample reserves policy, RBA Head of Domestic Markets David Jacobs noted that reserves have fallen by more than half since 2022 as assets acquired under pandemic-era policies matured.

Jacobs added that funds can still be sourced cheaply in short-term repo markets and the use of full-allotment open market operations under the new system is modest. He stated, 'Taken together, those indicators suggest that we're not yet in an environment where the level of reserves is driven by demand.'

The RBA plans to shift to a system of ample reserves to set interest rates, where banks' demands for reserves are satisfied via open market repo operations at a price near the cash rate target. Jacobs noted that it's uncertain when this will happen and could be some years away or earlier if banks increase their demand or there are market frictions.