SYDNEY (Reuters – Australia’s central bank has changed the way that it supplies liquidity to banks. The central bank stopped using quantitative easing, and is now preparing for the day when they will raise interest rates.

Christopher Kent, Assistant Governor of Reserve Bank of Australia (RBA), stressed that changes to OMO (open market operations) are not indicative of future monetary policy.

Kent explained that OMO will be maintained as long as there are liquidity conditions, economic outlook, and Bank monetary policies.

The RBA Governor Philip Lowe said that it is possible for the 0.1% cash interest to rise in the future if the economy improves. However, financial markets bet on an increase as soon as June.

Financial institutions usually use OMO to borrow the RBA short-term liquidity. But, this need has decreased sharply since the RBA floods the system in recent years with cash through long-term loans and bonds.

This excess liquidity, which was purchased by the RBA but has since stopped buying bonds from them, will gradually diminish and OMOs will become increasingly important.

Kent explained that OMO loan interest rates will change from fixed to floating, in preparation for the new rate. The rate is based upon the average cash rate throughout the loan term.

Kent stated that the RBA would like to get feedback from participants in order to make this change.

In the interim, the RBA would apply a hurdle rate that is based upon term-matched overnight index swaps in addition to a spread of five basis points. The March 30th change will be made.

OMO loans have a maximum term of four weeks. However, it could be extended if necessary.