The Reserve Bank of Australia (RBA) will offer to take short-term deposits from banks and financial institutions as part of its domestic operations.
Analysts said the move is aimed at mopping up some of the excess overnight funds that banks are holding as they refrain from lending to each other amid deepening risk aversion.
That has led to a spike in term-money rates, especially funding requirements for three months.
"What the RBA is trying to do here is mop up some of the excess cash to ensure that the overnight funds do not fall below the cash rate,'' said Adam Carr, senior economist at ICAP.
"At the same time it is trying to ensure that the funding squeeze that is taking place around the three-month term rates eases.''
The announcement follows a move by the US Federal Reserve to open new foreign currency swap lines with central banks of Australia, Denmark, Sweden and Norway.
The Fed said the currency swap lines with the three central banks were aimed to ease some of the upward funding pressure in money markets.
The RBA, which has so far stayed out of the coordinated approach by global central banks to ease the crunch in short term money markets, said the new deposit taking facility would be in addition to the existing repurchase agreements.
"The bank will conduct auctions at which eligible institutions will be able to bid for deposits,'' the RBA said. "The first of these auctions for a deposit of 14 days will be held on Monday, September 29 for settlement on Tuesday, 30 September.''
The interest rate payable on these deposits will be set as a margin to the RBA's cash rate and that margin could be a negative one, the RBA added.
The central bank, as part of its regular daily money market operation, accepts bank bills, certificate of deposits, government securities and top-rated residential mortgage-backed securities and asset-backed commercial paper.
Today, it added $815 million in repurchase agreements, compared to a estimated cash deficit of $612 million. It drained a small amount on Tuesday, but resumed pumping in cash on Wednesday as interbank lending rates remained high, threatening economic activity.
The latest injection should keep commercial banks' balances with the RBA around a record $6.8 billion. The central bank has been generous with liquidity in the past week, pumping in large amounts of cash in an attempt to soften the impact of the global credit crisis.
Three-month bank bill swap rates were at 7.45%, off a seven-week high of 7.49% struck on Tuesday, but still way above above the overnight cash rate of 7.0%.
Reuters
