Target cash rate

After every RBA board meeting - a public announcement is made about the "target cash rate". These announcements normally take the form of a media release consisting of a single line about the new cash rate and the various economic justifications. Below is an example.

rba-rate-decision

 

Exchange Settlement Accounts

rba-operationsLets have a look at how this decision by the RBA board is put into operation. On page 16 of the attached document "Operations in Financial Markets" - the RBA states:

The Reserve Bank pays interest on Exchange Settlement balances at a rate 25 basis points below the cash rate target. Similarly, the Reserve Bank stands ready through a standing facility to lend cash overnight to financial institutions at an interest rate 25 basis points above the cash rate target.

From the statement above - the Exchange Settlement accounts are part of the mechanism whereby the RBA sets the cash rate. Below are some additioanal statements that explain the nature of these Exchange Settlement accounts:

Exchange Settlement balances ... are used by financial institutions to settle their payment obligations with each other and with the [Reserve] Bank.

Aggregate Exchange Settlement balances averaged a little over $1¼ billion.

Most of the Reserve Bank’s transactions within the domestic market are contracted as repos.