The Federal Reserve Bank of New York, which implements U.S. monetary policy, again raised its supply of liquidity to ensure funding markets continue to function smoothly and curb any risk that pressure on money markets will have an adverse effect on the implementation of monetary policy.
The New York Fed said it would offer at least $175 billion in daily overnight repurchase operations, up from $150 billion, and at least $45 billion in 2-week repos twice per week beginning on March 12 and continuing through April 13, the same amount as offered this week.
In addition, the Fed will be offering money through three, one-month repos of at least $50 billion, beginning on March 12.
The New York Fed had been on track to slowly trim its liquidity injections after its sudden intervention in September last year when a shortage of reserves in the banking system pushed up repo rates beyond the range set by the Federal Open Market Committee (FOMC), the Fed’s policy-setting committee.
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But on March 9 the Fed switched course to ensure markets remained liquid amid tensions and boosted its offering of overnight liquidity through March 12 to $150 billion from $100 billion and the amount on offer through 2-week repos to $45 billion from $20 billion.
As on March 9, the Fed said the operations are intended to ensure that the supply of bank reserves remains ample, mitigate the risk of money market pressures adversely affect policy implementation, helping “support smooth functioning of funding markets as market participants implement business resilience plans in response to the coronavirus.”
On March 3 the FOMC cut its benchmark federal funds rate by 50 basis points to 1.0 to 1.25 percent in its first extraordinary rate cut since Oct. 8, 2008.
The FOMC is scheduled to meet again on March 17 and 18, with economists expecting another rate cut to cushion any impact on economic activity from the spreading coronavirus and the continuing plunge in stock markets.