NEW YORK Oct 21 The U.S. Federal Reserve on
Monday doubled the interest rate on overnight loans it pays Wall
Street dealers and money market funds, but it did not generate
much additional interest from them.
The latest round of testing of this fixed-rate, reverse
repurchase agreement program, which began about a month earlier,
is to prepare for the time when the Fed moves away from its
current near-zero interest rate policy. This reverse repo
operation is aimed to help the Fed to reduce cash in the
financial system and to achieve its interest rate target.
Fourteen bidders participated at the latest reverse repo
test. They lent $4.876 billion to the Fed which backs the loans
with the Treasuries it owns at an interest rate of 0.02 percent.
On Friday, nine bidders lent the Fed $4.221 billion for the
weekend at an interest rate of 0.01 percent.
"As an operational readiness exercise, this work is a matter
of prudent advance planning by the Federal Reserve. These
operations do not represent a change in the stance of monetary
policy, and no inference should be drawn about the timing of any
change in the stance of monetary policy in the future," the New
York Federal Reserve said in a statement on Friday, about
Monday's rate increase on reverse repos.