DMO Problemo (1 Viewer)

[nicksta_40]

With the RBA influencing the cash rate, i get confused with the effect of buying and selling 2nd hand Govt Securities

Tightening - RBA sells govt securities - causing shortage of funds, putting upward pressure on interest rates due to limited funds available for borrowing

Loosening - RBA buys govt securities from fin. institutions - create surplus of funds and excess liquidity, forcing downward pressure on interest rates.

Is this correct? IF not, plz correct me

 

[2tangy]

Yes if the RBA for opted a tightening stance, they will sell old government securities, -> lowers banks, Non-finanical Banking Corps. exchange settlement accounts, -> they then take "cash" out of a the overnight cash market... this creates a shortage of funds in the overnight cash market which then causes upward pressure on IR.. ..


Yup what you said was correct.

 

[absolution*]

whats a dmo?

 

[mushroom_head]

whats a dmo?

domestic market operations

it's part of monetary policy

 

[Teoh]

it IS monetary policy

 

[mushroom_head]

hehe...yeh
woops