The Federal Reserve announced on Tuesday that it would cut the borrowing costs of the municipal liquidity facility, an emergency loan facility for state and local governments in response to the new coronavirus outbreak.
“after the pricing adjustment, the interest rates on tax-free bills will be reduced by 50 basis points for various credit rating categories, and the interest rate of taxable bills will also be reduced relative to tax-free bills,” the Federal Reserve said in a statement. “Today’s adjustment will ensure that municipal mobility facilitation tools continue to support U.S. state and local governments affected by the outbreak.”
the municipal liquidity facility, which was announced in April this year, has so far only issued one loan, although state and local governments are facing severe financial conditions due to increased spending due to reduced taxes during the outbreak. Illinois announced in June that it would withdraw $1.2 billion from the Federal Reserve’s municipal liquidity facility at an interest rate of 3.82%.
before the announcement of pricing adjustments on Tuesday, municipal liquidity facilities were criticized for their high borrowing costs. In a letter to US Federal Reserve Chairman Colin Powell on August 5, congressmen asked to lower the pricing of the instrument to encourage more borrowing.