many ways they can be thought of as representing the ‘ bread and butter ’ of central banking – providing liquidity to meet demand at a time of considerable need, thereby acting to stabilise crucial markets. from my perspective, these operations have worked well. along with other monetary, fiscal, prudential and health policies, they contributed to a noticeable improvement in market sentiment and accommodative financial conditions. among other things, we clearly see the effect of that in the ability of firms to gain access to a wide range of funding, at low rates, including in fixed income markets. endnotes [ * ] i thank richard finlay for invaluable assistance in preparing this material. debelle g ( 2020 ), ‘ the reserve bank's policy actions and balance sheet ’, address to the economic society australia, 30 june. for further details see https : / / www. rba. gov. au / media - releases / 2020 / mr - 20 - 07. html. for further details see https : / / www. rba. gov. au / media - releases / 2020 / mr - 20 - 08. html. this option allows us to account for information about the rates and size of trades that have occurred over a number of days, even if the volume on any one of those days was not sufficient to publish a reliable measure of the cash rate. for full details of the fall - back procedures see https : / / www. rba. gov. au / mkt - operations / resources / cash - https : / / www. rba. gov. au / speeches / 2020 / sp - ag - 2020 - 07 - 27. html 13 / 14 27 / 07 / 2020 the reserve bank's operations – liquidity, market function and funding | speeches | rba rate - methodology / cash - rate - procedures - manual. html. these procedures allow for the cash rate to continue to be published, including in the absence of market transactions, and allow for changes in the benchmark design in response to market conditions to ensure that the cash rate continues to reflect the interest rate relevant to unsecured overnight funds. statistical table a3 contains data on such purchases ; see https : / / www. rba. gov. au / statistics / tables / xls / a03. xls. the purchase by commercial banks of the bonds of the states and territories also contributes to a rise in bank deposits since the states and territories hold

27 / 07 / 2020 the reserve bank's operations – liquidity, market function and funding | speeches | rba speech the reserve bank's operations – liquidity, market function and funding christopher kent [ * ] assistant governor ( financial markets ) address to kanganews online – 27 july 2020 introduction in the early stages of the pandemic, there was extreme uncertainty about how much economic activity would decline and how long the economic disruption would last. it was also uncertain how much support would be provided by monetary and fiscal authorities. and so, as the virus spread around the world through early march, extreme uncertainty and the prospect of a sizeable decline in economic activity was reflected in financial markets globally. in particular, there was a sharp rise in the volatility of asset prices, a decline in the prices of risky assets, and before too long, dislocation in a number of key financial markets ( graph 1 ). most notable were the problems affecting government bond markets, which are critical to the pricing and operation of financial markets more broadly. australia was no exception. https : / / www. rba. gov. au / speeches / 2020 / sp - ag - 2020 - 07 - 27. html 1 / 14 27 / 07 / 2020 the reserve bank's operations – liquidity, market function and funding | speeches | rba graph 1 these conditions underpinned a general rush for liquidity, including by banks and other financial institutions. more generally, investors in a wide range of financial markets also sought to shore up their liquidity and reduce their exposures to riskier positions. in reaction to this increase in the demand for liquidity around the world, central banks increased the supply of liquidity as part of a broader policy response to support their economies ( graph 2 ). they provided that liquidity initially by scaling up their open market operations. central banks also bought government bonds in secondary markets. they did this with a view to restoring more normal functioning in those markets, but it also had the effect of providing additional liquidity to those selling the bonds. furthermore, a number of central banks started new facilities, or extended existing ones, to provide longer - term funding to banks at favourable rates. https : / / www. rba. gov. au / speeches / 2020 / sp - ag - 2020 - 07 - 27. html 2 / 14 27 / 07 / 2020 the reserve bank's operations – liquidity, market function and funding | speeches | rba