New York:
For a third straight day, the Federal Reserve Bank of New York on Thursday injected billions into US money markets to preserve the Fed’s control over short-term interest rates but requests for funds increased.
The New York Fed said it pumped USD 75 billion into the markets, the maximum it announced for the so-called repo operation. But requests submitted rose to USD 83.9 billion, surpassing the USD 80 billion requested in Wednesday’s operation.
Banks have struggled in recent days to find the cash needed to meet reserve requirements which has pushed up short-term borrowing rates.
US Federal Reserve Chairman Jerome Powell on Wednesday downplayed concerns about the cash crunch in US financial markets, saying the situation says little about the real economy.
Like many economists, he attributed the issue to the deadline for quarterly business tax payments, which prompted companies to withdraw cash from bank accounts, converging with a surge in Treasury debt issues, which moves cash out of the economy and into the government’s coffers.
Banks borrow regularly in markets for very short periods, usually overnight, to make sure their daily cash reserves do not fall below the required level. And the Fed adds or removes liquidity to keep interest rates in line with the desired target.
But a cash shortage in recent days prompted the New York Fed to pump just more than USD 200 billion into the short-term market as interest rates soared and threatened to break out of the Fed’s target range.
The Fed, which cut benchmark lending rates interest rate on Wednesday, also made some technical adjustments to try to keep the rate in line with the range, including cutting the interest it offers on bank reserves held at the Fed that are in excess of the minimum required level.
