Securing the future: the role of the repo market

The speech accompanies the publication of a Reserve Bank Bulletin article examining developments in government bond-backed repo markets in New Zealand and internationally.

“Today, I want to talk about an important channel of monetary policy implementation, or what’s sometimes referred to as the ‘financial market plumbing’ that helps transmit the policy stance through the financial system. That is the repo market,” Ms Silk said.

Ms Silk said repo markets have grown significantly in recent years, both globally and in New Zealand.

“As repo markets become more important, they matter more for monetary policy.”

The speech discusses the recent changes to the Reserve Bank’s liquidity management framework, which places weekly repo operations at the centre of its approach to supplying liquidity to the financial system.

Ms Silk said a well-functioning repo market supports the distribution of liquidity across the financial system.

“Because repo helps distribute cash, a well-functioning repo market can lower the amount of settlement cash needed and reduce the Reserve Bank’s footprint in markets.”

The speech also calls on market participants to help strengthen the depth, liquidity, transparency, and resilience of New Zealand’s repo market.

“The Reserve Bank clearly has a role through its policy settings and operating frameworks. But market participants can also act to improve the depth, liquidity and transparency of the market,” Ms Silk said.

Ms Silk said more counterparty relationships, greater pricing transparency, and improved market infrastructure would help support the continued development of the market.

“If we get this right, the repo market will support better liquidity management, stronger monetary policy transmission, and more dynamic and resilient capital markets.”

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