RBA to shift monetary policy settings
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The news: The Reserve Bank of Australia (RBA) has announced it is shifting to a new system when implementing monetary policy.
The context: Currently, there is a “floor” with an excess of reserves and one option canvassed by the RBA board at its March meeting was a “corridor” system with minimal reserves which was used pre-Covid.
The new approach will strike a balance between these two options to ensure ample reserves, similar to the Bank of England, European Central Bank and Swedish central bank. This will not affect the level of rates.
The RBA’s board said it was important to plan for the future system as unconventional monetary policies used during the pandemic are unwound and engage settlement balances decline.
What they said: “Members discussed the importance of establishing this system in a way that clearly separates liquidity provision for ordinary payments needs or system-wide shifts in liquidity needs from liquidity provision to banks facing idiosyncratic liquidity stress,” the RBA board said.
The source: RBA meeting minutes statement
