RBA’s OMO Repo Rate Moves Up To 12bps On Operational Change

(This article was first published on Wednesday, March 30 at 12:50 PM as an email to premium subscribers)

By Sophia Rodrigues

(Sydney, March 30, 2022)—An operational change to the Reserve Bank of Australia’s open market repos has resulted in a slight rise in the hurdle rate to 12bps from 10bps that had prevailed since November 2020.

While the increase is a reflection of prices in the money market, it could still be interpreted as a tiny first step in the direction of higher interest rates, especially if the rate goes up in the next few weeks.

CB-Intel wrote on Tuesday the rate might go up slightly when the change takes effect on Wednesday, but more interesting will be how much it rises at subsequent weekly repos when the maturity goes past the RBA’s May meeting and then the June meeting.

The RBA lent A$1.545 billion at Wednesday’s repo which will reverse on April 27. The total outstanding in RBA repos following this transaction is A$7.3 billion.

Starting Wednesday, the hurdle rate is the rate on term-matched overnight indexed swaps plus a modest spread of around 5bps.

The repo rate will eventually move to a floating rate based on the average cash rate target prevailing over the repo term. The RBA said it will get feedback from market participants on the extent of adjustments that may be required to their systems to accommodate a floating rate before it makes the change

--Contact: Sophia@centralbankintel.com