The Reserve Bank of Australia (RBA) has announced updates to its monetary policy implementation system, known as the 'ample reserves with full allotment' system. This system allows eligible counterparties to borrow the required reserves during open market operations (OMO). The recent announcement includes modifications to the configuration of the OMO and outlines the function of the overnight standing facility.

These updates aim to supply the necessary reserves to maintain the cash rate near its target. As the system progresses towards an ample level of reserves, some market participants might encounter an increased demand for liquidity. In such cases, they might need to borrow reserves from private money markets if other counterparties have a surplus. If they cannot secure liquidity on favorable terms in private markets or through weekly OMOs, they are advised to use the overnight standing facility, which supports the implementation of monetary policy within the ample reserves system.

According to both the RBA and the Australian Prudential Regulation Authority (APRA), using the overnight standing facility by banks aligns with routine liquidity management activities, and both institutions see no problem with banks utilizing this facility when necessary. The RBA and APRA will communicate with banks to ensure they comprehend the overnight standing facility's role within their liquidity management practices.

Further information on the RBA's new monetary policy implementation approach is available in a recent speech by RBA Assistant Governor, Financial Markets, Christopher Kent. Additional details can be found on the RBA's standing liquidity facilities webpage.