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Short-term interest rates have returned to normal margins above the official cash rate, following the Reserve Bank's intervention to avert a looming liquidity crunch last Thursday.
At 8.56 per cent yesterday, 90-day bank bill yields were back where they were immediately after the Reserve Bank raised the official cash rate to 8.25 per cent on July 26. They had rocketed to 9.18 per cent last week as mounting risk aversion in global credit markets spread to the inter-bank market here and banks began hoarding cash.
The Reserve Bank responded by saying that as a temporary measure it would accept bank bills, as well as Government securities, as collateral in its overnight reverse repo facility - albeit at a 100 basis points premium to the OCR.
"The central bank's action has restored liquidity to that market," Financial Markets Association chief executive Paul Atmore said.
