The Reserve Bank today published a Bulletin article that explains how the Bank manages liquidity in the banking system.

Effective management of liquidity plays a crucial role in New Zealand’s banking system. It allows the Reserve Bank to implement monetary policy, ensures the smooth operation of New Zealand’s payments and settlements systems and allows the Bank to ensure that the public has confidence in New Zealand’s banking system.

The Bulletin article provides an overview of the tools and facilities the Bank has in place to manage the level of liquidity in the banking system, the rationales for utilising these tools, and how their use helps to ensure short-term interest rates trade close to the Official Cash Rate (OCR).

The article also describes what the Bank does to maintain a stable and sufficient supply of system liquidity and how the Bank ensures that individual banks have access to liquidity to meet daily transactional obligations through the payments and settlement system.

This article may be read in conjunction with a Bulletin article published last month which explored the impacts of diminishing liquidity in markets.

More information: Reserve Bank Bulletin