Asia's Central Banks Ease Cash Injections; Ready To Step Up

Asia-Pacific central banks continued pumping cash into the banking system Monday but eased off the liquidity spigot after massive fund injections by global central banks seemed to have calmed financial markets - at least for now.

The actions show the central banks remain vigilant about a liquidity squeeze after concerns about the fallout from the U.S. subprime-mortgage blowout. But they're adopting a lower profile compared to last week, when subprime contagion ripped through global financial markets last week, causing stock prices to plunge and denting the ability of even unaffected banks to raise cash. The Bank of Japan injected Y600 billion into the Tokyo short-term money market Monday to curb a rise in the overnight call rate. But this was at the lower end of expectations - which had run more toward a Y1 trillion burst like that seen Friday. This reduced injection appears to be a sign Japan's authorities see a respite from last week's turmoil. Also signaling less demand for liquidity, the Reserve Bank of Australia bought a modest A$1.52 billion in securities through repurchase agreements, vs its estimate of a daily financial-system deficit of A$2.22 billion. This contrasted with Friday, when the RBA bought A$4.95 billion - double the estimated daily deficit. South Korea's vice finance minister vowed that the Seoul authorities would deal preemptively with any liquidity squeeze via repo purchases if needed, while saying the impact from the U.S. subprime-loan crisis on Korea is limited. "Since we have relatively smaller exposure to U.S. mortgages and in light of solid global economic fundamentals, the markets will gradually regain stability," Vice Finance Minister Kim Seok-Dong told reporters after a meeting with senior government officials. Monday's actions by the region's financial authorities indicate a calm start to the week after the Federal Reserve Friday eased fears of a credit seize-up by injecting its biggest transfusion of emergency cash into the banking system since the aftermath of the 9/11 attacks. U.S. shares ended steady after violent lurches in both directions in recent days. The Fed's liquidity addition capped nearly $300 billion in injections by the three biggest central banks alone since Thursday. Few would dare suggest the turmoil in global credit markets has ended. But at least until the next shoe drops, banks are able to borrow in their local markets with the backing of the authorities. While injecting significantly less cash Monday than Friday, the BOJ continued pumping money into the market as the call rate again rose above the central bank's target of 0.50%, said BOJ official Hirotaki Hideshima. He told Dow Jones Newswires it was hard to know why the market rate had risen but it was "possible that lenders might be taking a little bit of a cautious stance" after the recent tumult. In another sign of at least temporary calm, Australian Central Credit Union Ltd. said Monday it has raised A$350 million through its first residential mortgage-backed securitization. "The issue was more than two times oversubscribed, attracting strong interest from a range of institutional investors, both domestically and offshore," the credit union said in a statement.