US Fed extends US repo facility and swap lines to 2021
10 August 2020 New York
Image: Funtap/Adobe.com The US Federal Reserve is extending its temporary US dollar liquidity swap lines and the repo facility for foreign and international monetary authorities (FIMA repo facility) until 31 March 2021.
These facilities were established in March to ease strains in global dollar funding markets resulting from the COVID-19 shock and to mitigate strains on the supply of credit in the US and globally.
The FIMA repo facility and swap lines were expected to run until at least until October but the ongoing global financial disruption and fears of regional second waves of the coronavirus have required the Fed’s prolonged intervention.
The Fed says the extensions of these facilities “will help sustain recent improvements in global US dollar funding markets by maintaining these important liquidity backstops”.
In addition, the continuation of the FIMA repo facility will help support the smooth functioning of the US treasury market by providing an alternative temporary source of US dollars other than sales of securities in the open market, the US central bank adds.
The extension of the temporary swap lines applies to all nine central banks set up in March allows the provision of US dollar liquidity in amounts up to $60 billion each for the Reserve Bank of Australia, the Banco Central do Brasil, the Bank of Korea, the Banco de Mexico, the Monetary Authority of Singapore, and Sweden’s Sveriges Riksbank.
They also allow the provision of US dollar liquidity in amounts up to $30 billion each for the Danmarks Nationalbank, the Norges Bank in Norway, and the Reserve Bank of New Zealand.
The levels of financial support provided by the Fed both to Wall Street and its global peers have already reached unprecedented levels and, by March, will represent one of the longest-running periods of intervention in the market.
The decision represents a shift in sentimental for the Fed which in April had begun winding down its additional funding facilities that were launched in March during the initial peak of the pandemic-inspired market chaos.
The Fed had ramped up its repo schedules in March but a lack of demand in April allowed it to taper off these additional liquidity lines and return to its pre-COVID schedule in May.
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