With the Federal Reserve cutting rates 75 basis points Tuesday morning and the probability of more cuts to come, corporate treasuries are scrambling to make sure their cash portfolios are positioned for a potentially wild rate ride downhill. The prospects of significantly lower rates raise questions about whether companies need to continue to sit on record cash cushions or whether it is time to redeploy funds back into the business through expansion, M&A or even share purchases and dividend increases.

The longer-term answer will be different for every company depending on a company's access to financing and outlook as the country lumbers toward recession. But in the very short run at least, bankers like Elyse Weiner, global product head for liquidity and investment products at Citigroup, are reminding treasurers and CFOs to look at money market mutual funds, where rates tend to lag cuts by the Fed. "One of the first calls I received after the cuts were announced was a note," she says. "Of course, this makes sense. The rate cut, and the potential for additional cuts, will prompt treasuries to once again revisit their liquidity management policies and practices. Over time, holding overly high levels of excess cash will inevitably depress returns. But, on the other hand, there is a continuing push-pull effect as access to credit and the capital markets may still be limited despite the cuts."

Since the summer, when the credit market began to dry up as the subprime crisis spread, Weiner says treasurers and CFOs have been fixated on their cash and liquidity management, pushing ahead with account structures and processes to mobilize and consolidate cash accounts to ensure easy and inexpensive access to available liquidity. Recently some companies have been forced to pull back on debt issues in fear they would not be well received by skittish markets. "What this argues for is achieving the most efficient use of internally generated cash and the need for the best visibility possible into account and transaction level information. Know where your money is and if it is liquid and accessible where and when needed. Recent events have given rise to situations where companies could not gain ready access to cash they had earmarked for disbursement, and so had to borrow to cover current obligations. Although lower rates will lower the cost of borrowing, you don't necessarily want a scenario where you have limited options."

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