New York Federal Reserve boosts money market cash injection as banks' demand rises

[NEW YORK] The Federal Reserve Bank of New York on Wednesday announced it will increase Thursday's money market cash injections as it seeks to keep short-term interest rates under control.

Banks this week have repeatedly asked for more overnight cash than the New York Fed offered to help financial institutions meet minimum reserve levels.

The New York Fed on Thursday morning will offer up to US$100 billion in so-called repurchase agreements - exchanges secure assets for cash over very short periods - up from the US$75 billion offered on prior days.

The New York Fed branch's open market trading desk will also double the amount of two-week agreements offered Thursday to US$60 billion.

Banks on Wednesday morning had asked the Fed for an aggregate of about US$92 billion, outstripping the US$75 billion on offer, a sign that the problem has not cooled off so far.

Amid hefty corporate tax payments and Treasury auctions, banks have struggled this month to find the cash needed to meet reserve requirements - which threatened to push up short-term borrowing rates beyond the Fed's benchmark lending rates.

The scarcity of cash makes borrowing more expensive but the US central bank in recent months has moved benchmark rate lending rates in the opposite direction - going lower to help stimulate the economy as global growth slows and US trade wars drag on.

The market interventions are the first since the global financial crisis, when credit markets seized up as banks feared borrowers would not be able to repay.

The New York Fed, the Federal Reserve branch which conducts repurchase operations, has since September 17 pumped short-term cash into money markets on a daily basis to help financial institutions that are short of liquidity meet reserve minimums.

The repurchases are due to continue until October 10.

Officials have said so far that the liquidity crunch was caused by a confluence of technical factors that do not reflect on the health and stability of the economy or monetary policy.

In congressional testimony on Wednesday, Federal Reserve Board Governor Lael Brainard said officials had the matter in hand.

"I would really say that the New York Fed is very focused," she said.

"They've been providing ample operations to relieve those temporary frictions."

AFP