Kamran Mohtadi Central banking, liquidity crises and financial stability SS 2011 Lecturer: Dr. Ulrich Bindseil 1 Introduction RBA‘s Implementation of Monetary policy Statistics 2 A Brief History of Monetary Implementation in Australia RBA‘s Market Operations 3 Commonwealth Bank of Australia The Australian Notes Board & The First OMO in Australia Creation of RBA in January1960 as a separate central bank in Australia 4 Implementation of its monetary policy decisions operational target for monetary policy Foreign Exchange Intervention Transactions in the Foreign Exchange Market and in Foreign Asset Market Management of Australia’s International Reserves 5 Open Market Operations Intra-day Liquidity Facility Overnight Liquidity Facility Term Deposits AOFM Securities Lending Facility US Dollar Term Repo Operations 6 Operational target: The cash rate – The overnight interest rate on unsecured borrowings in the interbank market 7 Exchange Settlement (ES) Funds OMO determines the aggregate supply of ES funds and are designed to ensure that supply equals demand at the target cash rate ES Funds In Normal Times Used for: ◦ Transactions with the Government : Government Expenditures Federal Taxes Commonwealth Government Securities (CGS) ◦ Transactions Undertaken by the Banks With Other Finantial Institutions 8 Outright Transactions & Repurchase Agreements Until the middle of the 1980s outright transactions in CGS Through the 1990 Repurchase Agreements Source: http://www.rba.gov.au 9 Australian dollar denominated securities acceptable for repurchase agreements since the mid 1990s ◦ Short-term Securities Rated A–1 ◦ Long-term Securities Rated AAA ◦ Bills and Certificates of Deposit Issued by Authorised Deposit-taking Institutions (ADIs) The Financial Crisis and subsequent Relaxation of Restrictions ◦ ◦ ◦ ◦ Wider Range of Securities Issued by ADIs Securities Backed by High-quality Residential Mortgages Asset-backed Securities (ABS) Residential Mortgage-backed Securities (RMBS) 10 Source: http://www.rba.gov.au 11 12 Prior to the crisis The longest Term for Repos was three months In the second half of 2007 six-month and oneyear repos. open market operations with foreign exchange swaps during the crisis 13 Eligible ES account holders Repurchase Agreement With Eligible Securities Repo Rate 0 % Proceeds current market value of the securities 14 Eligible ES account holders Repurchase Agreement With Eligible Securities Repo Rate 0.25 % over the current target for the cash rate Proceeds current market value of the securities + profit 15 Short-term Deposit Offered between September 2008 and April 2009 Eligible ES account holders Tender Process 16 On behalf of The Australian Office of Financial Management (AOFM) Securities Fixed Coupon Treasury Bonds Securities not available from other Sources in the market 17 Offered between September 2008 and February 2010 US Dollar Liquidity Against Eligible Australian Dollar Securities as Collateral. 18 Change in Cash Rate ES Balances Held at RBA Average Term of RBA Repos Dealt Usage of Overnight Standing Facility Reserve Bank Balance Sheet 19 -2.00 01-Aug-2010 01-Aug-2009 01-Aug-2008 01-Aug-2007 01-Aug-2006 01-Aug-2005 01-Aug-2004 01-Aug-2003 01-Aug-2002 01-Aug-2001 01-Aug-2000 01-Aug-1999 01-Aug-1998 01-Aug-1997 01-Aug-1996 01-Aug-1995 01-Aug-1994 01-Aug-1993 01-Aug-1992 01-Aug-1991 01-Aug-1990 +16.00 +14.00 +12.00 +10.00 +8.00 +6.00 -0,50 -1.00 to -1.50 16.50 to 17.00 15.00 to 15.50 +4.00 +2.00 0 Source: http://www.rba.gov.au 20 21 22 23 Source: http://www.rba.gov.au 24 Source: http://www.rba.gov.au 25