Reserve Bank of New Zealand Assistant Governor Karen Silk said repurchase agreement, or repo, markets have grown significantly in recent years globally, supported by more government bond issuance and changes in regulation, risk appetite and market infrastructure, and because of this, repo markets matter more for monetary policy, according to a Wednesday speech.

Silk said the RBNZ made changes to its liquidity management framework earlier this year, with a weekly repo operation now a key part of that framework, adding that building a deeper and more resilient repo market in New Zealand would require involvement from all market participants, including through more active price-making and building a wider network of counterparties.

The assistant governor said repo is not only important for monetary policy transmission but also for financial stability, with the Financial Stability Board identifying three main risks in government bond-backed repo markets, including a build-up of leverage across the system, supply and demand quickly becoming unbalanced during periods of stress, and activity being concentrated among a small number of key firms.

Silk said a well-functioning repo market can lower the amount of settlement cash needed and reduce the Reserve Bank's footprint in markets, adding that if done right, the repo market would support better liquidity management, stronger monetary policy transmission and a more dynamic and resilient capital market in New Zealand.