What are Reserve Bank of Australia market operations?

1 ANSWERS

1. Banking Expert
   

   The Reserve Bank operates in financial markets for policy purposes, on behalf of its clients and to manage its balance sheet. The most important of these operations are those undertaken to implement its monetary policy decisions. The Bank’s operational target for monetary policy is the cash rate – the overnight interest rate on unsecured borrowings in the interbank market. The cash rate is determined by the demand and supply of exchange settlement (ES) balances which commercial banks hold at the Reserve Bank. Through its open market operations, the Bank alters the volume of ES balances so as to keep the cash rate as close as possible to the Board’s target. These operations involve both outright transactions and repurchase agreements in the domestic markets. At times, The Reserve Bank augments these operations with foreign exchange swaps. The Bank operates in the foreign exchange market from time to time to mitigate disorderly market conditions or address overshooting in the value of the Australian dollar. These activities are commonly known as foreign exchange intervention. The Reserve Bank also operates in the foreign exchange market to meet the demands of its clients for foreign exchange. The most important of these clients is the Australian Government. The Reserve Bank undertakes transactions in the foreign exchange market and in foreign asset markets as part of its responsibility for the management of Australia’s international reserves. These reserves are held on the balance sheet of the Reserve Bank and are deployed to facilitate policy operations in the foreign exchange and domestic cash markets.

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