For the third day in a row the Reserve Bank has drained cash from the short term money markets, confident that the recent liquidity squeeze is easing.

The bank offered to do $1.388 billion in repurchase agreements this morning, despite the market being “down” $2.56 billion (or in deficit). Wednesday and Thursday also saw the RBA progressively wind back its repurchase offerings to around half or less than the system deficit.

At the same time the amount of money left in the Exchange Settlement account has fallen from $4.56 billion on Tuesday to $3.2 billion on Thursday night; another sign the big banks (who tell the RBA how much money to leave in the ESA at the end of each days trading) are becoming more confident.

Cash left in the ESA is wasted money from the banks’ point of view. But yields on 90 day bank bills rose slightly this morning to 6.86% from 6.84% yesterday, a sign that the nervousness hasn’t quite gone away yet.

Peter Fray

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