Australia’s Overnight Cash Rate Rises To 4bps As Volume See Small Rise

(This story was first published on Tuesday, November 16 at 10:52 AM as an email to premium subscribers)

By Sophia Rodrigues

(Sydney, November 16, 2021)—Australia’s interbank overnight cash rate rose 1bp to 4bps last Friday for the first time since early January, reflecting slight increase in demand for overnight cash for the last three weeks.

For many months, the overnight cash rate was set at 3bps by the Reserve Bank using its expert judgement method as activity in the overnight market remained well below A$500 million and included 23 days this year where there were no trades.

The RBA’s cash rate target is 10bps which is its monetary policy instrument.

Since late October, there have been days where the volume rose above A500 million, which means the rate is set based on actual trades, rather than RBA’s expert judgement.

On Friday, the volumes was A$584 million with rates ranging between 3bps and 6bps, and the overnight rate was set at 4bps. On Monday, the overnight rate was again 4bps with the volume at A$553 million and traded rates from 3bps to 4bps.

If volume goes below A$500 million on Tuesday, the RBA will use the expert judgement based on the last published rate which is 4bps. The RBA could revert the rate to 3bps, if it uses another expert judgement to set the rate based on trades and market conditions, provided it is satisfied 3bps is a more accurate rate for overnight funds.

Meanwhile the three-month BBSW rate is around 4bps and the six-month rate is 14bps