Media Release Changes to the Reserve Bank's Domestic Market
Operations in the Transition Phase to Real-time Gross Settlement

As a further move towards the introduction of real-time gross settlement in Australia, the Reserve Bank will change the arrangements under which it conducts its domestic market operations in several steps over coming months. The changes are intended to avoid disruption in money markets during the transition phase to real-time gross settlement; the changes are of a technical nature and have no implications for the stance of monetary policy. When the transition phase is completed, and real-time gross settlement is introduced in late 1997, the Reserve Bank's market operations will be reviewed again.

There are three changes to be introduced over coming months, as follows:

1. Commencing on 12 June 1996, the Reserve Bank will broaden the range of counterparties with which it is prepared to deal in its domestic market operations, from authorised short term money market dealers to all members of the Reserve Bank Information and Transfer System (RITS). For the information of potential counterparties, the Bank has today released a paper which outlines details of its operating procedures. Apart from a change to the documentation for repurchase agreements, these procedures are unchanged from those which currently apply.
2. Commencing on 12 July 1996, the Reserve Bank will pay interest on balances remaining overnight in Exchange Settlement Accounts of banks and special service providers. To this time, balances in these accounts have been negligible, as banks have loaned any surplus funds to the authorised money market dealers. With the winding down of the authorised dealers, the Exchange Settlement Accounts will become the repository for banks' surplus funds. Balances in these accounts will count towards banks' Prime Assets Ratio requirement (PAR).
   
   The interest rate that the Reserve Bank will pay on Exchange Settlement Accounts will be the rate banks currently receive when they lend exchange settlement funds to authorised money market dealers, ie the new arrangements will preserve the status quo in terms of banks' return on exchange settlement funds. This interest rate has typically averaged about 10 basis points below the Reserve Bank's announced target for overnight cash rates in the money market; this will be the margin which the Reserve Bank will incorporate into the new arrangements effective on 12 July.
   
   While it is not envisaged that the margin will be changed frequently, the Bank reserves the right to do so if market circumstances warrant. Any such changes will have no significance for monetary policy. The stance of policy will continue to be indicated by the announced target for cash rates in the money market.
3. The final instalment of the changes to market arrangements will occur on 9 August 1996, when the Reserve Bank will withdraw all facilities it currently provides to the authorised short term money market dealers.