RBA Injects Extra Cash Into Market

Source : The Business Tims, September 12, 2007

Despite the RBA widened the types of assets it accepts as collateral when lending to financial institutions, it has had little success in restraining interbank rates.

SYDNEY - Australia's central bank injected a modest amount of extra cash into the banking system on Wednesday as it struggled to temper a spike in money market rates caused by an ongoing global credit crunch.

Credit market woes have led to a near strike among lenders while borrowers are scrambling to find fresh sources of funding for one month and beyond.

The Reserve Bank of Australia (RBA) added A$900 million (US$750 million) to the banking system on Wednesday, above the market's estimated cash need of A$816 million.

The extra addition should see commercial banks' accounts with the RBA expand from the current A$4.31 billion, well above the A$750 to A$850 million range seen before the global credit squeeze started to bite.

The central bank has been providing the banking system with extra cash for the past month in an attempt to break a logjam in lending and limit upward pressure on some key market rates.

The RBA even widened the types of assets it accepts as collateral when lending to financial institutions, yet it has had little success in restraining interbank rates.

On Wednesday, three-month bank bill rates were up at 7.08/10 per cent and unusually far above the RBA's 6.5 per cent cash rate. -- REUTERS