A Brief History of Monetary Policy Implementation in Australia

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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
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