Christopher Kent, Assistant Governor at the Reserve Bank of Australia, spoke about updates to the RBA’s Monetary Policy Implementation System at the KangaNews Debt Capital Market Summit in Sydney. He announced that the RBA would increase the price on all new OMO repos by 5 to 10 basis points above the cash rate target.
Starting from April 9, a seven-day term will be introduced alongside the existing 28-day term for weekly OMOs. An OMO repurchase agreement involves the RBA purchasing government securities from a bank, which agrees to repurchase them later at a higher price, providing temporary liquidity to the financial system.
Changes To Monetary Policy Implementation
This update outlines upcoming changes to how the Reserve Bank of Australia (RBA) injects short-term funds into the banking system, particularly through its Open Market Operations (OMOs). Kent confirmed slight increases in the cost of liquidity provided via these repos. By raising the rate on new repurchase transactions to sit clearly above the cash rate target, the central bank is fine-tuning access to funds and slightly reducing the relative attractiveness of using central bank liquidity as a low-cost funding source. While the shift isn’t large in numerical terms—just 5 to 10 basis points—it marks a deliberate recalibration of the system that participants should read carefully. It’s an unmistakable signal on funding conditions.
The forthcoming structural adjustment also reintroduces a seven-day term for repo deals, in conjunction with the more established 28-day term, beginning 9 April. This adds flexibility to the liquidity management toolkit. We should view it as providing two levers: one responding to immediate pressures, while the other allows activity to play out across a longer horizon. Together, they offer participants more choice in matching funding profiles to market needs.
What this tells us—in plain terms—is that short-term costs are being allowed to edge up, and that fine-tuning is underway. It supports central objectives, but the inference for pricing risk is that short-dated funding will probably not ease from here. Repo spreads must reflect this underlying shift.
We think there’s more than just mechanical tinkering going on. These changes arrive amid heightened interest rate sensitivity across instruments, and volatility in front-end rates remains sticky. Every tweak in terms and rates should now be viewed through a lens of where duration risks are felt most acutely, and how positioning adapts as liquidity conditions lean tighter on the margins.
Implications For Risk Pricing And Term Structure
From our perspective, the pricing of term risk in short tenor rates could start to embed this steeper funding premium relatively quickly. This is not to say overnight dynamics will suddenly break away from anchor expectations, but more to suggest that pressure at the short ends may persist, especially where collateral availability and haircuts influence marginal funding decisions. Derivatives that rely on expectations for cash rate stability may require more active rebalancing. Interbank costs aren’t static anymore.
Kent’s remarks imply no abrupt moves. Rather, we see a preference to shape funding costs in small steps. That approach buys optionality for the central bank, but also leaves room for rates markets to mildly overshoot where liquidity scars emerge. Expectations should mirror that: less certainty in the middle path, and more weighting on the tails. Particularly with new term structures being reintroduced into OMOs, implied rate path forwards should be rechecked for any hidden biases.
We are watching spread behaviour more closely now, especially in swaps index-linked to funding markets. Cash-collateralised trades may creep upward in carry cost. Those with longer repo reset assumptions will want to double-check carry expectations embedded in curve structures. Short tenor hedges, while still reactive, might lag slightly if assumptions around repo floors aren’t adjusted promptly.
This isn’t a sweeping policy shift, but it does ask for more careful scrutiny of curve shape where funding intersects margin management.
