The Reserve Bank has hauled back dramatically on the liquidity it injected into the financial markets over the past week.
The RBA said this morning that it had provided $2.025 billion of funds via repurchase agreements to cover a system deficit of $1.969 billion, a much smaller cover than we saw last week when the best part of $12 billion was injected into the markets to cover much smaller deficits each day.
There was $US6.8 billion left in the Exchange Settlement Account on Friday night for weekend liquidity cover, still high, but down slightly on the $6.9 billion overnight Thursday.
The RBA’s move was in contrast to the Bank of Japan which injected another 1.5 trillion yen (or $A16.88 billion) into money markets to help stabilise them in the aftermath of last week’s turmoil.
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The Bank of Japan announced the move on its website shortly after the opening of the stock market, which was sharply higher on news of a US rescue package for the financial sector.
The BoJ is one of six major central banks that pledged last week to coordinate monetary action to ensure a flow of liquidity after the collapse of investment giant Lehman Brothers.
The $US700 billion bailout fund has obviously helped stabilise market sentiment.