For fifth day in a row the Reserve Bank has pumped billions of dollars into the Australian financial markets in an effort to keep the system liquid and cash rates low.

The bank did $1.926 billion in repos of bills, $40 billion of repos in asset backed paper (which has been rare) and $60 million of residential mortgage based securities (for the fourth time this week). The total was just over $2 billion for a system deficit of $1.050 billion.

However, there was another interesting deal. The bank did a foreign exchange swaps of $1 billion which took out money, taking the total amount to more than $2 billion and over $12 billion this week. The RBA did this swap to inject more US dollars into the system. The Australian dollars taken out were re-injected into the domestic market via the repurchase arrangements this morning. It was similar to what the Fed did overnight with other banks and itself, but the RBA did the deal from its own resources.

And the RBA’s Exchange Settlement Account had more than $6.9 billion left in it overnight by nervous banks. That’s the highest for some time and the second night in a row that the banks have left more than $6 billion in the account.

It was a sign of just how nervous they are about problems overnight and the damage they could do to liquidity and the ability of their transactions to be settled by morning.

The foreign exchange swap came after the Fed gave central banks in Japan, the eurozone, the UK, Switzerland and Canada $US 180 billion to lend on to local banks that cannot access its onshore dollar lending facilities in America through its Term Auction facility or other operations now running.

Peter Fray

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