TD Weigh In On Tuesday’s OMO Announcement

TD Securities point to no immediate implications re: the RBA’s Tuesday OMO tweaks. They write that “there is a significant amount of cash in the system and this is likely to remain the case until Term Funding Facility maturities come up and bonds are set to mature. For now the amount of cash in the system means that Banks can obtain cheaper sources of funding via the interbank market (FX forwards, repo, term deposits) compared with obtaining funding from RBA OMOs at 10bps. That said, the changes announced today are justified. Fixing the cost of repo to the target cash rate made sense when the target cash rate was expected to remain on hold for a prolonged period of time. This is now increasingly looking less likely. Pricing of liquidity now matters.”