Reuters: New York Fed Extends Daily Repo Operations to November 4

October 07, 2019

Article by Jonnelle Marte in Reuters

The New York Federal Reserve will continue to boost liquidity in money markets into November, the bank announced on Friday.

The bank will offer daily repurchase agreement, or repo, operations, offering at least $75 billion a day in daily cash injections through Nov. 4. The Fed also announced term repos for firms wanting to borrow cash for longer, with most offerings lasting two weeks. This extends a policy that was initially supposed to end next week.

The continuation of the daily repo operations ensures that financial firms will be able to turn to the central bank to borrow cash until at least the next Fed meeting, when policymakers are expected to discuss a more permanent solution.

The New York Fed began holding daily repo operations on Sept. 17, after a key borrowing rate in overnight lending markets for cash spiked to 10%. The central bank succeeded in calming markets through the operations, but some investors and former Fed officials have been calling on the central bank to deliver a long-term fix.

Some investors say the Fed should permanently increase liquidity in the banking system by expanding the size of the balance sheet or introducing a standing repo facility, which would allow firms to borrow cash as needed at a fixed rate.

Shahid Ladha, head of strategy for G10 rates Americas at BNP Paribas, called the extension of the repo operations a “positive” move, but said a structural change is needed. He estimates the Fed needs to increase reserves by close to $400 billion over the next year to avoid scarcity issues.

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