New York Fed to further reduce repo support


By Jonnelle Marte

NEW YORK (Reuters) – The New York will further scale back the support it is providing in the overnight lending markets for , the said Thursday.

The cap on the Fed’s daily operations in the market for repurchase agreements, or repo, will be reduced to $100 billion, from $120 billion, starting Friday.

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The maximum offerings on term repo operations, which last two weeks, will be reduced on Tuesday to $25 billion from $30 billion. In March, the cap will be reduced further to $20 billion.

The Fed will continue to purchase $60 billion a month in short-term Treasury bills, a program policymakers describe as a technical adjustment aimed at increasing the level of reserves.

The U.S. central began intervening in money markets in mid-September, when a shortage of cash to a spike in short-term borrowing costs. The Fed started purchasing bills in mid-October to boost reserves above the levels seen in early September, before the volatility began.

Policymakers said the long-term plan is to raise reserves to a level where the repo operations are no longer needed – a point they expect to reach around mid-year. Fed Chair Jerome reiterated those plans during the press conference after the January policy meeting and in testimony before Congress this week.

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