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RBA aims to make reserves demand-driven while keeping cash rate near target
RBA Head of Domestic Markets David Jacobs said the shift toward a banking-system managed reserve flow will increase the importance of active liquidity management for financial institutions.
Reserve Bank of Australia Head of Domestic Markets David Jacobs said the RBA is aiming for a reserve system that can flexibly supply whatever quantity the banking system demands while keeping the cash rate close to the board’s target, according to FXStreet.
Jacobs described the “Road to ample” transition as moving from an arrangement where the RBA determines the quantity of reserves to one where the banking system does, making liquidity management more central for financial institutions as reserves become more demand driven.
The RBA sets interest rates and manages monetary policy through decisions made by a board of governors at 11 meetings per year, with ad hoc emergency meetings as required, and its primary mandate is to maintain price stability with inflation of 2-3%, while also contributing to currency stability and full employment.
FXStreet also noted that changes in interest rates can affect the Australian dollar, with relatively higher rates tending to strengthen AUD, and discussed how inflation outcomes can influence capital inflows and currency demand in a world with more relaxed cross border capital controls.