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

 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 9 Source:

 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

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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 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

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