Education

A Case Study of Liquidity Management on 3 August 2016

Chris Becker & Stephanie WoonFinancial Markets Group

Source: RBA

Reserve Bank Open Market Operations

What is the main purpose of the Reserve Bank’s open market operations?

… liquidity management.

Bank A Bank BEconomic

agentsEconomic

agents

Receipts

Payments

Liquidity Management of Interbank Obligations

Liquidity Management of Interbank Obligations

Bank A Bank B

Reserve Bank

Government

Economic agents

Economic agents

Receipts

Payments

Outflows like tax payments to ATO

Inflows like government welfare payments

Liquidity Management Illustration

What did the Reserve Bank do in open market operations on a day the target cash rate was changed?

… 3 August 2016

Liquidity Management on 3 August 2016

Bank A Bank B

Reserve Bank

Government

Economic agents

Economic agents

Receipts

Payments

Outflows -$5 billionInflows +$3 billion

Liquidity Management on 3 August 2016

Bank A Bank B

Reserve Bank

Government

Economic agents

Economic agents

Receipts

Payments

Outflows -$5 billionInflows +$3 billion

OMOs +$2 billion

OMO Announcement on 3 August 2016

Allocation Screen

Notification of Results

Repurchase Agreement

Central bank BankInject cash

Securities

First Leg: 3 August 2016

Central Bank

Second Leg: 3 August 2018

D19/27137 GENERAL

Central bank Bank

Central bank BankInject cash

Securities

Second Leg: 3 August 2018

Inject cash

Securities

Repurchase Agreement

Central bank BankInject cash

Securities

First Leg: 3 August 2016

Central Bank

Second Leg: 15 Aug and 7 Oct

Central bank Bank

Central bank

Drain cash

Securities