October 24, 2019 / 6:35 PM / a month ago

New York Fed offers to inject more liquidity into the banking system

FILE PHOTO: The Federal Reserve Bank of New York is pictured in the Manhattan borough of New York City, New York, U.S., October 4, 2019. REUTERS/Carlo Allegri

(Reuters) - The Federal Reserve Bank of New York is boosting the size of the cash injections it can make into overnight borrowing markets.

The New York Fed on Thursday started offering at least $120 billion in daily operations in the market for repurchase agreements, or repo, up from $75 billion. The amount offered for term repo operations on Oct. 24 and Oct. 29 was increased to at least $45 billion, from $35 billion.

The increase was announced as demand has grown for the daily liquidity infusions from firms seeking to have enough cash on hand to cover seasonal funding needs.

For example, demand for daily repo operations was oversubscribed last week when firms seeking enough cash to cover Treasury settlements bid for $80 billion in daily repo operations, above the maximum offering of $75 billion.

Some market strategists and analysts say funding pressures could potentially intensify at the end of the month, which marks the end of the Canadian fiscal year. Some Canadian banks could cut back on lending and borrowing in U.S. repo markets if they face regulatory pressure to decrease the size of their balance sheets.

The New York Fed said the change was meant to “ensure that the supply of reserves remains ample even during periods of sharp increases in non-reserve liabilities, and to mitigate the risk of money market pressures that could adversely affect policy implementation.”

The Fed began intervening in money markets in mid-September, when a liquidity crunch led to a spike in short-term borrowing rates. The U.S. central bank also announced earlier this month that it would permanently raise the level of reserves in the banking system by purchasing about $60 billion a month in short-term Treasury bills.

Those efforts have succeeded in calming markets by bringing funding costs down. But money market stress is expected to rise toward the end of the year, when banks concerned about liquidity requirements may be less willing to lend their reserves.

Reporting by Jonnelle Marte; Editing by Bernadette Baum

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