1 Kamran Mohtadi Central banking, liquidity crises and financial stability SS 2011 Lecturer: Dr....

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Reserve Bank of Australia

Kamran MohtadiCentral banking, liquidity crises and financial stabilitySS 2011Lecturer: Dr. Ulrich Bindseil

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Introduction

RBA‘s Implementation of Monetary policy

Statistics

Agenda

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IntroductionA Brief History of Monetary Implementation in AustraliaRBA‘s Market Operations

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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

A Brief History of Monetary Policy Implementation in Australia

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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

Market Operations

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RBA‘s Implementation of Monetary policy

Open Market OperationsIntra-day Liquidity FacilityOvernight Liquidity Facility Term Deposits AOFM Securities Lending FacilityUS Dollar Term Repo Operations

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Operational target: The cash rate – The overnight interest rate on unsecured borrowings in the interbank market

Open Market Operations

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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

Open Market Operations

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Outright Transactions & Repurchase Agreements Until the middle of the 1980s outright

transactions in CGS Through the 1990 Repurchase Agreements

Open Market Operations

Source: http://www.rba.gov.au

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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)

Open Market Operations

11Source: http://www.rba.gov.au

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Prior to the crisis The longest Term for Repos was three months

In the second half of 2007 six-month and one-year repos.

open market operations with foreign exchange swaps during the crisis

Open Market Operations

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Eligible ES account holders Repurchase Agreement With Eligible

Securities Repo Rate 0 % Proceeds current market value of the

securities

Intra-day Liquidity Facility

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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

Overnight Liquidity Facility

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Short-term Deposit Offered between September 2008 and April

2009 Eligible ES account holders Tender Process

Term Deposits

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On behalf of The Australian Office of Financial Management (AOFM)

Securities Fixed Coupon Treasury Bonds Securities not available from other Sources

in the market

AOFM Securities Lending Facility

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Offered between September 2008 and February 2010

US Dollar Liquidity Against Eligible Australian Dollar Securities as Collateral.

US Dollar Term RepoOperations

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StatisticsChange in Cash RateES Balances Held at RBA Average Term of RBA Repos DealtUsage of Overnight Standing FacilityReserve Bank Balance Sheet

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01-A

ug-1

990

01-Ju

l-199

1

01-Ju

n-19

92

01-M

ay-1

993

01-A

pr-1

994

01-M

ar-1

995

01-F

eb-1

996

01-Ja

n-19

97

01-D

ec-1

997

01-N

ov-1

998

01-O

ct-1

999

01-S

ep-2

000

01-A

ug-2

001

01-Ju

l-200

2

01-Ju

n-20

03

01-M

ay-2

004

01-A

pr-2

005

01-M

ar-2

006

01-F

eb-2

007

01-Ja

n-20

08

01-D

ec-2

008

01-N

ov-2

009

01-O

ct-2

010

-2.00

0

+2.00

+4.00

+6.00

+8.00

+10.00

+12.00

+14.00

+16.00

-0,50 -1.00 to -1.5016.50 to 17.00 15.00 to 15.50

Change in Cash Rate

Source: http://www.rba.gov.au

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ES Balances Held at RBA

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Average Term of RBA Repos Dealt

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Usage of Overnight Standing Facility

24Source: http://www.rba.gov.au

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Source:http://www.rba.gov.au