Key Points
(Bloomberg) -- Australias central bank will switch to a new system for the implementation of monetary policy as passive quantitative tightening leads to a decline in reserves in the banking system, Assistant Governor Christopher Kent said on Tuesday..
At its March meeting, the Reserve Banks rate-setting board considered three options for the future framework for implementing monetary policy, Kent said in a speech at the Bloomberg Australia Briefing..
The board endorsed the third option to move to an ample reserves system with full allotment repurchase agreement or repo auctions for its open market operations, Kent said..
The RBAs decision reflects a fundamental shift in how central banks implement monetary policy as they try to strike a balance between operating with a smaller balance sheet and reducing their footprint in financial markets, while avoiding liquidity shortages in the system that may damage financial stability and impair monetary transmission. ..
But a large proportion of the central banks A$527 billion in assets is now gradually rolling off as the table below shows. . The RBAs implementation of monetary policy is an area of confusion for professional economists, commentators and educators alike, particularly following the pandemic..
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