By Gemma Daley and Laura Cochrane
Aug. 28 (Bloomberg) -- Australia's money market remains ``under pressure'' and the central bank will intervene if needed to stabilize the cost of credit, Reserve Bank Deputy Governor Ric Battellino said.
Australia's central bank added A$3.87 billion ($3.2 billion) to the financial system on Aug. 17. It has injected more than A$3 billion only three times this year, all since Aug. 10.
``These operations have held the cash rate at the target and helped stabilize conditions more normally. Nonetheless some pressures remain,'' Battellino told a retail financial services forum in Sydney today, according to speech notes. ``If market developments warrant, the bank has the scope to further expand the provision of liquidity.''
Central banks pumped billions of dollars of emergency cash into markets this month as commercial banks became hesitant to lend.
Sales of previously owned homes in the U.S. fell to a five- year low in July and the glut of unsold properties climbed to their highest since 1991, according to a report by the National Association of Realtors in Washington yesterday. The data sent investor optimism about the outlook for the U.S. financial markets to a one-year low amid concern the housing slump will deepen.
`Banks Sound'
Australian banks are in ``very sound'' condition and have experienced ``minimal credit losses,'' Battellino said.
``They were nonetheless affected by the spread of the global money-market turmoil,'' he said. ``Yields on asset-backed commercial paper as yet haven't fallen, indicating a continuing high degree of nervousness.
``A market adjustment had to take place in commercial-backed paper yields. The problem isn't over yet, it's a global situation that comes from the U.S. subprime market.''
Yields on short-term debt in Australia surged more than 30 basis points, or 0.30 percent, in the past two weeks to between 30- 40 basis points more than the benchmark swap rate, according to the Commonwealth Bank of Australia, the nation's second-largest lender.
Units of Australian banks such as Westpac Banking Corp. and Commonwealth use short-term loans to finance investment in longer- term securities such as asset-backed bonds. The profit usually delivered from this strategy is being cut by rising yields.
Bank Bills
``Activity in this market dried up sharply, the effect being that for a time funding wasn't available at any price,'' Battellino said. ``The volume of securities issued has fallen, and the maturities have shortened.''
About A$60 billion of commercial paper, with maturities from 30 to 90 days, is typically sold in Australia each month, according to figures from Standard & Poor's.
The Reserve Bank's operations undertaken in bank bills has risen to 80 percent, compared with the usual 30 percent, Battellino said.
The Reserve Bank on Aug. 8 raised its benchmark interest rate to 6.5 percent, the highest in 11 years, to curb inflation.
The Australian dollar snapped six days of gains, falling to 82.52 U.S. cents at 9.59 a.m. in Sydney from 83.18 cents late in Asia yesterday.
