Source: MIL-OSI Submissions
Source: Reserve Bank of New Zealand
6 May 2022 – The Reserve Bank has undertaken an internal review of its monetary policy implementation framework. As a result of this review, the Reserve Bank will retain a floor system for monetary policy implementation, and does not intend to reintroduce credit tiers.
A floor system is where all Exchange Settlement Account System (ESAS) accounts are remunerated at the Official Cash Rate (OCR). This framework was implemented in March 2020 following the removal of credit tiers on ESAS accounts.
The current settlement cash level (SCL) is more than sufficient to keep short-term interest rates anchored at or near the OCR and for payment and settlement needs. However, we expect the SCL to decline in the coming years.
As the SCL reduces, staff will continue to monitor money market conditions, facilities and operations usage, and the distribution of settlement cash, to ensure that payments and settlements systems function smoothly and that short-term interest rates trade at or near the OCR.
The Reserve Bank is reviewing its facilities and operations to ensure that these remain effective at all levels of settlement cash, and will be engaging with market participants on this topic over the coming months.
This announcement relates to the Reserve Bank’s framework for implementing monetary policy and managing liquidity. It has no implications for the Reserve Bank’s monetary policy stance, which is determined by the Monetary Policy Committee.
