The Reserve Bank seems to have stalled a sudden tightening in short term money market rates and may even have engineered a softening in these key pricing yields for the banks.
A combination of boosting the amount of cash left in the system at the end of each day and some aggressive targeted repurchase deals on Friday and Monday has seen yields on 90 and 180 day bank bills ease noticeably.
Yields on 90 day bills fell from 8.12% on Monday (the highest for 12 years) to 8.08% yesterday, while yields for 180 day bills dropped from 8.25% (also a 12 year high) to 8.14%.
The move was independent of the decisions by the US Federal Reserve to significantly boost the amount of money available to US and European financial markets to try and ensure the credit crunch doesn’t become a credit lockout.
Since the end of February the RBA has been gently lifting the amount of money it leaves in the Exchange Settlement Accounts at the end of each trading day to cover overnight transactions between the banks.
Nervy banks have asked the RBA to leave more money in the ESA because of worries about credit conditions, so that amount has risen from around $1.8 billion in mid-February to $3.456 billion this week, the highest since central banks around the world flooded their financial systems with cash in late December to prevent any chance of a lock-up at year’s end.
Last Friday the bank covered the $478 million deficit in the system with repos of $435 million and left $2.644 billion in the ESA over the weekend, but bank bill yields still rose Monday. So yesterday the RBA lifted the amount in the ESA and significantly boosted its repurchase deals during the day to try and inject more cash and send a message to the banks and others.
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