FX.co ★ Ample-Reserves Transition Still Underway: RBA Jacobs

The Reserve Bank of Australia has reiterated that its transition to an ample-reserves framework is still underway, with no fixed timeline for reaching a new equilibrium. In a recent speech, Head of Domestic Markets David Jacobs said market behaviour will ultimately signal when the level of reserves reflects banks’ underlying structural demand rather than the temporary build-up of assets during the pandemic. He emphasised that this demand could increase or decrease over time, highlighting the importance of maintaining flexibility in the implementation of the framework.

Under the new system, the RBA will no longer target a specific quantity of reserves. Instead, it will supply liquidity as needed to keep the cash rate trading close to the Board’s target. This approach will be anchored by full-allotment open market operations, with additional tools available should repo markets fail to function smoothly.

The central bank also confirmed that its open repo facility is no longer required, noting that it was designed for a regime characterised by scarce reserves. In the new environment, market participants will need to manage their liquidity positions more actively, making greater use of both RBA facilities and private money markets as they adjust to the evolving framework.