World News

New York Fed increases repo support to keep markets running smoothly

By Jonnelle Marte

NEW YORK (Reuters) – The New York Federal Reserve announced for the second time this week that it will substantially increase the amount of liquidity it provides to overnight lending markets, signaling to financial firms that the central bank will do what it can to keep money markets running smoothly amid fears tied to the coronavirus.

The central bank will raise the maximum offering of its daily operations in the market for repurchase agreements, or repo, to $175 billion through mid-April. That is up from the limit of $150 billion announced Monday and above the previous cap of $100 billion.

The Fed also said it will introduce three one-month term repo operations of at least $50 billion each, with the first one being offered on Thursday. That will be in addition to two-week term operations of $45 billion each that will be offered twice a week.

“These operations are intended to ensure that the supply of reserves remains ample and to mitigate the risk of money market pressures that could adversely affect policy implementation,” the New York Fed said in a statement on Wednesday.

The increased support comes as stock markets are selling off sharply. Investors worried about the downside economic effects of the coronavirus, which the World Health Organization classified as a pandemic on Wednesday, are fleeing to safety.

Demand for repo support from the Fed has increased in recent weeks, which have been marked by high market volatility. On Wednesday, primary dealers took in $132 billion in daily repo loans from the Fed, the most since the central bank began offering the temporary liquidity injections in mid-September.

(Reporting by Jonnelle Marte; Editing by Chizu Nomiyama and Sonya Hepinstall)