Media Release Domestic Market Dealing Arrangements

On 5 September, in order to assist banks meet liquidity needs under the Continuous Linked Settlement (CLS) arrangements, the Reserve Bank introduced a new facility for intra-day repurchase agreements based on eligible bank bills and negotiable certificates of deposit. Following consultation with industry and a review of the facility's operation, the Reserve Bank has decided to make two changes to the current arrangements.

The first is to reduce the interest charge that applies in those exceptional circumstances when the holder of an Exchange Settlement Account is unable to unwind a repo under this facility by the close of the RTGS day. Under the existing arrangements, if the Reserve Bank were to agree to a request to extend the unwind leg of the repo to the next business day, the interest charge would be the same as that which applies to an overdrawing of an Exchange Settlement Account. Under the new arrangements, the interest charge has been reduced substantially to the target cash rate plus 200 basis points.

The second change is to broaden the list of credit rating agencies used to determine the instruments that are eligible for use under this facility. Under current arrangements, eligible issuers must be rated by both Standard & Poor's and Moody's Investor Services. Under the new arrangements, Fitch Ratings has been added to the list and eligible issuers must be rated by at least two of the three agencies.

The credit standards that securities must meet to be eligible for the facility remain unchanged. They must be issued by a firm that has the highest available short-term rating from at least two of these agencies and a long-term rating of at least AA-, or equivalent, from at least two of these agencies.

All other aspects of the facility also remain unchanged and are set out in the Reserve Bank Media Release of 15 July 2002 and the information paper of 17 December (both available on the Reserve Bank's website www.rba.gov.au).

Enquiries

Philip Lowe
Head of Domestic Markets
Reserve Bank of Australia
SYDNEY
(02) 9551 8300

James Whitelaw
Domestic Markets Desk
Reserve Bank of Australia
SYDNEY
(02) 9551 8320