June 28, 2018 / 3:31 PM / 5 months ago

MONEY MARKETS-U.S. fed funds rate posts first drop in two months

NEW YORK, June 28 (Reuters) - What U.S. banks charge each other for excess reserves on Wednesday recorded its first decline in almost two months, hinting at more supply of reserves available, New York Federal Reserve data released on Thursday showed.

The effective or average overnight interest rate on federal funds was 1.91 percent on Wednesday, down from 1.92 percent for the previous five trading days.

This was the first daily drop since April 30.

The amount of excess reserves traded totaled $83 billion, up from $82 billion on Tuesday and which was the most that changed hands in 2-1/2 weeks, according to New York Fed data.

But the effective fed funds rate remained above 1.875 percent, the midpoint of the Fed’s target range on short-term borrowing costs.

The elevated level of the daily average fed funds rate in recent weeks has spurred speculation whether it will force the U.S. central bank to halt the shrinkage of its balance sheet sooner than planned.

Reporting by Richard Leong Editing by Susan Thomas

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