By Michael S. Derby
New York (Reuters) – A federal bank of the New York reserve, head of the implementation of monetary policy, said Thursday that the central bank encourages the use of a key liquidity tool which, so far, was largely sleeping.
Regarding the repo installation standing, or SRF, “I encourage our counterparts to use the SRF when it is logical – the installation is there to support the effective implementation of monetary policy and a smooth operation of the market,” said Roberto Perli, who manages the open market account of the central bank system, in the text of a speech prepared for a conference organized by his bank. “It is in everyone’s best interest if the SRF works as expected,” said Perli.
The FED SRF was launched in 2021 and offers eligible rapid cash companies in exchange for cash securities, with the aim of strengthening market liquidity and avoiding unexpected deficits which can be difficult to counter quickly for the Central Bank. Until now, the markets, still rinse with liquidity, have largely left the SRF alone outside the end of the third quarter of last year, a short period of volatility.
Perli reiterated in his remarks that, soon, the New York Fed will join her afternoon SRF operations with morning availability.
“In the not too distant future”, “the New York Fed” will begin to implement the daily operations of the morning SRF which will also be resolved in the morning, “said Perli.” This will be an important step to improve the efficiency of the installation and, on the sidelines, this can contribute “to allow the Fed’s assessment to be smaller than it would be.
Perli is responsible for the implementation of monetary policy for the Central Bank, both in terms of managing its short -term interest rate objective and its massive cash and obligations. Perli noted in his remarks that the continuous contraction of the Fed balance sheet, which saw the central bank, lost just over 2 dollars in cash and mortgage bonds, has probably means to proceed, although there are signs of tightening the liquidity of the monetary market.
As Fed’s assets shrink and reserve levels decrease, “the upward pressure on monetary market rates should increase,” said Perli, adding “we are starting to see the first signs of this on the replenishment market, especially around key report dates”.
This increase in the repo market rib is not a source of concern, “said Perli. But he also noted that it is likely to increase the need for markets to use the SRF to manage their liquidity needs.
(Report by Michael S. Derby; edition by Andrea Ricci)
