RBA says reserves still above demand amid shift to new liquidity system

Australia's central bank, the Reserve Bank of Australia (RBA), has reported that the reserves in the financial system remain above underlying demand as it transitions to a new liquidity system. In a recent speech, the RBA's Head of Domestic Markets, David Jacobs, emphasized that reserves have decreased by more than half since 2022 as the assets the central bank acquired during the pandemic era have matured.

Although funds can still be obtained affordably in short-term repo markets and the utilization of the full-allotment open market operations remains modest under the new system, Jacobs stated that the level of reserves is not yet influenced by demand. He added that it is uncertain when the RBA might achieve sufficient reserves, which could take several years, or may happen sooner if banks increase their demand or if there are market disruptions.

In 2024, the RBA announced its shift to a system of ample reserves to determine interest rates, eliminating the previous system that set a floor for rates with excess reserves and an exchange settlement (ES) rate.