RBA Sees Reserves Above Demand Amid Shift to New Liquidity System
The Reserve Bank of Australia (RBA) has announced that reserves in the financial system are still above underlying demand. This comes as the central bank shifts to a new liquidity system, which will provide enough liquidity to banks while keeping rates anchored near the official cash rate.
RBA Head of Domestic Markets David Jacobs said that reserves have fallen by more than half since 2022, due to the assets acquired under pandemic-era policies maturing. However, funds can still be sourced cheaply in short-term repo markets and the use of the full-allotment open market operations under the new system is modest.
According to Jacobs, 'taken together, those indicators suggest that we're not yet in an environment where the level of reserves is driven by demand.' He added that it remains highly uncertain when this will happen, and it could be some years away. However, if banks increase their demand or there are market frictions, it could occur earlier.