Bernanke promises more action by central banks to ease the pain

WASHINGTON: Federal Reserve chairman Ben S Bernanke said central bankers worldwide are prepared to take additional actions as needed to unfreeze credit markets, citing continued strains even amid ���tentative improvements.���

���The continuing volatility of markets and recent indicators of economic performance confirm that challenges remain,��� Bernanke said on Friday at a panel discussion hosted by the European Central Bank in Frankfurt. ���For this reason, policymakers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.���

Bernanke led the ECB and other central banks last month in the broadest coordinated interest-rate cut in history. The Fed also removed limits on currency-exchange programmes with four of its counterparts, including the ECB, and agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore.

���Monetary policy actions have not resolved the ongoing strains in financial markets,��� Bernanke said in prepared remarks at the ECB conference, which is marking the 10th anniversary of the euro.Bernanke said ���financial markets remain under severe strain,��� while noting ���tentative improvements in credit-market functioning.���

He didn���t specify what new steps central banks could take. The Fed, ECB, Bank of England and other central banks have all lowered rates since the coordinated cut on October 8. While the governments probably won���t coordinate fiscal policy, their actions will likely become increasingly similar, Bernanke said.

Central banks created the currency swap lines in response to ���strong demand for dollar funding��� in the US and other countries, Bernanke said. The ���recent sharp deterioration��� in interbank and other funding markets, where some financial institutions normally got dollars, left some companies ���without adequate access to short-term dollar financing,��� he said.

Since the coordinated rate reduction, the Fed has cut its benchmark rate another half-point to 1%. The central bank has provided more than $1 trillion in loans to financial institutions to mitigate the worst credit crunch in seven decades and head off a global recession. The Federal Open Market Committee next meets December 16.

���Bernanke���s remarks make us think another coordinated rate cut cannot be ruled out,��� said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. There is ���no hint that the Fed has run out of bullets,��� he said.

Corporations with investment-grade credit ratings were paying a premium of about 6 percentage points above comparable Treasuries to issue debt as of November 4, up from 5 points a month earlier and 2.5 points in May, according to Merrill Lynch.

���Central bankers and other policymakers around the world must continue to work together to address disruptions in credit markets and to promote a vibrant global economy,��� Bernanke said.