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RBA acts to steady markets

Lachlan Maddock
— 1 minute read

The RBA has provided the financial system with billions in liquidity in an attempt to steady global markets roiled by the coronavirus outbreak.

The RBA made the move via its daily open market operations, pumping around $8 billion into the system through repo transactions – short-term operations where financial institutions provide collateral in exchange for cash reserves – as markets experience a massive liquidity squeeze following some of the worst days since the GFC.

The money was lent for periods ranging from 17 to 95 days, with around $5.6 billion going to the longest date. Repo transactions are not a form of quantitative easing, which the RBA has indicated it would only consider at interest rates of 0.25 per cent. 

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The bank previously said that it will “ensure that the Australian financial system has sufficient liquidity” in the aftermath of its most recent board meeting, where it cut rates to 0.50 per cent. 

The move follows that of the US Federal Reserve, which has offered trillions in liquidity as it attempts to combat the same global market hysteria. 

The Fed expanded its $60 billion reserve management purchases across 11 sectors, including nominal coupons, bills, Treasury Inflation-Protected Securities, and Floating rate notes. The Fed will also undertake a $500 billion three-month repo operation, as well as $175 billion in overnight repos and $45 billion in two-week term repos. 

Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule. 

“These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak,” the New York Fed wrote in a statement. 

“Reserve management purchases into the second quarter will continue to be conducted with this maturity allocation. The terms of operations will be adjusted as needed to foster smooth Treasury market functioning and efficient and effective policy implementation.”

The move comes as the Fed’s emergency rate cut to 0.50 per cent backfired and Trump’s proposed fiscal stimulus measures landed with a thud due to the inclusion of a 30-day ban on travellers from Europe.

 

RBA acts to steady markets
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