RBNZ Seeks Resilient Repo Market Amid Global Growth
New Zealand's Reserve Bank is working to strengthen its liquidity toolkit by developing a more robust and resilient repo market. Assistant Governor Karen Silk emphasized that repurchase agreements have become increasingly important globally, driven by increased government bond issuance and regulatory changes.
The bank revamped its cash management strategy earlier this year, incorporating weekly repo operations as a key component. Repos involve short-term loans secured by high-quality collateral such as New Zealand government bonds.
Silk highlighted the importance of a deeper repo market in reducing the risk of sudden cash supply-demand imbalances and leverage building up, which can exacerbate market volatility. The Financial Stability Board has identified these weaknesses in government bond-backed repo markets.