Joseph Abate, a strategist at Barclays, said the Fed was unlikely to adjust the parameters of its overnight reverse repurchase agreement facility to drive the flow of cash parked in money market funds back to banks.
“Bank depositors are now more aware of the opportunity cost of their deposits,” Abate said, “so balances in pure government funds are likely to continue to grow, albeit at a slower pace.” Some of the cash flowing into pure government money funds is expected to eventually flow into reverse repos protocol (RRP). ”
The Federal Reserve may lower the upper limit for counterparties to use the RRP tool, or lower the RRP interest rate, to further reduce its attractiveness to monetary funds. But cutting the RRP rate by 5 basis points may have limited effect, as there is no guarantee that cash forced out of the facility will eventually go to the banks most in need.
