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NY Fed eases eligibility requirements for reverse repo facility

FILE PHOTO: People walk wearing masks outside The Federal Reserve Bank of New York in New York

By Jonnelle Marte

(Reuters) -The Federal Reserve Bank of New York said on Friday that it will loosen the eligibility requirements for its reverse repo facility, expanding access to the program at a time that it is seeing higher demand from institutions with excess cash.

Money market funds and other eligible firms injected $173 billion in cash overnight into the facility for reverse repurchase agreements on Thursday and $167 billion on Wednesday, continuing the trend of higher use seen over the past few weeks.

Under the new rules, money market funds with net assets of at least $2 billion will be allowed to use the facility, below the previous threshold of $5 billion.

The New York Fed is also removing a requirement that government sponsored enterprises, or agencies that help to support the mortgage market, be required to have an average daily outstanding amount of reverse repo transactions of at least $1 billion.

The facility helps the Fed set a floor on short-term rates by giving firms a place to park their cash overnight. Eligible institutions can lend cash to the Fed overnight in exchange for Treasury securities or other collateral.

Lorie Logan, an executive vice president at the New York Fed and the manager of the System Open Market Account, said earlier this month that it could expand access to the program, which is expected to become more important for implementing monetary policy at a time when reserves are abundant.

Some analysts speculate that the downward pressure on rates will require the Fed to make some technical adjustments to keep short-term rates from falling too low, such as lifting the rate it pays on reverse repo transactions from 0.0% or raising the interest it pays on excess reserves, or IOER, from 0.10%.

The Fed left those rates unchanged at this week’s meeting but Federal Reserve Chair Jerome Powell said the central bank could make adjustments later if needed.

(Reporting by Jonnelle Marte; Editing by David Clarke)

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