domestic market operations and liquidity forecasting.pdfVIP

Domestic Market Operations and Liquidity Forecasting Alexandra Baker and David Jacobs* the stance of monetary policy in Australia is set in terms of a target for the cash rate. to keep the cash rate at the policy target, the Reserve bank sets the supply of exchange Settlement (eS) balances at a level consistent with demand. the level of eS balances changes when entities in the private banking system transact with the Reserve bank and its clients, particularly the Australian Government. these changes need to be accurately forecast, so that they can be counterbalanced by the Reserve bank’s domestic market operations. Introduction In order to keep the cash rate at the target set by the Board, each day the Reserve Bank adjusts the The stance of monetary policy in Australia is total supply of ES balances – referred to as ‘system determined by the Reserve Bank Board and is set cash’ – to a level consistent with the demand for in terms of a target for the cash rate – the interest ES balances. Individual institutions must maintain rate on overnight, unsecured loans between a positive ES balance at all times, and those that financial institutions. The cash rate in turn affects face the prospect of a negative balance (because of the broad spectrum of interest rates in the financial