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Australia central bank reassures market of robustness of cash rate benchmark

Australia's central bank on Tuesday sought to reassure the market of the robustness of the cash rate as a benchmark as activity declined below the relevant thresholds in recent periods, making it hard to calculate the rate.

The Reserve Bank of Australia (RBA) is the administrator of the cash rate benchmark which it set at 0.1% earlier this month. a speech on Tuesday, Assistant Governor Chris Kent said the RBA would continue to publish the cash rate even in circumstances when there are insufficient transactions in the market on a given day.

In most cases, the cash rate is determined as the last published rate based on sufficient transaction volumes, Kent said.

The procedures put in place by the RBA also allow for the cash rate to be determined by the central bank in its expert judgement and based on market conditions, Kent added.

"So this has ensured that the cash rate continues to reflect the interest rate relevant to unsecured overnight funds," he noted.

Last week, the overnight cash rate was calculated using transactions on all days as volumes lifted, indicating the interbank system may have settled after initial volatility when the RBA trimmed the benchmark rate to 0.1%, analysts said.

"Though hard to say if it will settle exactly at 0.05% or say 0.04%, we think we can with some confidence say it won't deviate much from this range," ANZ analysts said in a note on Monday.

Banks use the market for unsecured overnight interbank loans to manage their liquidity.

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