Bulletin – December 2010 Domestic Market Operations and Liquidity Forecasting Abstract

The stance of monetary policy in Australia is set in terms of a target for the cash rate. To keep the cash rate at the policy target, the Reserve Bank sets the supply of Exchange Settlement (ES) balances at a level consistent with demand. The level of ES balances changes when entities in the private banking system transact with the Reserve Bank and its clients, particularly the Australian Government. These changes need to be accurately forecast, so that they can be counterbalanced by the Reserve Bank's domestic market operations.

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