MNI BRIEF: RBA Changes OMOs As Short Term Rates Set To Rise

The Reserve Bank of Australia has outlined changes to its Open Market Operations (OMO) in preparation for when short term money market rates rise and the central bank starts to unwind its balance sheet from the AUD$350 billion bond buying programme.

In a speech on Tuesday, RBA Assistant Governor Chris Kent outlined a floating rate for OMO repos and implementing a maximum tenor for most repos of four weeks beginning from Wednesday, see: MNI INSIGHT: RBA To Let Bonds Mature As It Hikes Rates. He said these were operational adjustments and did not provide guidance on future monetary policy.

The bank will continue to apply a fixed hurdle rate for OMOs, and this will change from the current cash rate target of 0.10% to the rate on term matched indexed swaps plus an initial spread of five basis points. The RBA expanded its OMOs in 2020 in response to conditions in money markets created by monetary policy actions to deal with the pandemic, but Kent said that it is now time to make further changes.