ECB offers banks fixed-rate funds to increase liquidity
The European Central Bank turned on the liquidity taps to banks, offering unlimited funds at a below-market fixed rate as market unease over the US subprime mortgage crisis continues.
By Agencies |
FRANKFURT: The European Central Bank turned on the liquidity taps to banks on Tuesday, offering unlimited funds at a below-market fixed rate as market unease over the US subprime mortgage crisis continues.
In a statement the ECB said that during the two-week market refinancing operation (MRO) beginning Tuesday it would allow banks to borrow an unlimited amount of funds and would keep the rate at 4.21 percent, below the 4.9 percent market rate for similar operations over the past few days.
"Specifically, as a minimum the ECB will satisfy all bids at or above the weighted average rate of the MRO settled on 12 December, i.e. 4.21 percent," the bank said.
Since the US market for high-risk loans collapsed in August, central banks have been boosting liquidity into the banking sector to ensure that banks continue to extend credit to businesses.
On December 12 the European, US and Swiss central banks said they would provide more than 60 billion dollars to money markets over longer periods and under easier-than-usual conditions to calm the markets.
The Wall Street Journal reported that this would be only the second time in the ECB's nine-year history that it would offer an unlimited amount of funds at a fixed rate. The first time was on August 9 when financial markets first seized up as the US subprime mortgage market melted down.
The ECB announced last week that it would exceptionally extend the MRO for two weeks.
In its Monday announcement, the ECB it told banks they can have a nearly unlimited amount of funds at the below-market level of 4.21 percent through the end of the year, a delicate time for financial institutions which need to close their accounting books.
For its part, the Fed began on Monday an operation to inject 20 billion dollars into the market. The results of that are to become known on Tuesday.
In another planned move, the Fed is expected to inject another 40 billion dollars into the market in the coming days.
Markets worldwide have become increasingly jittery over the credit squeeze, the losses it has caused and implications the wider economy. Wall Street shares fell sharply Monday in the wake of a sea of red on European and Asian bourses.
"Wall Street remains concerned over the possibility of more huge writeoffs from global financial companies and the ramification those write-offs could have on the banks' ability to finance the global economic expansion," said Fred Dickson, strategist at DA Davidson & Co.
Resurgent inflation has also been a concern of investors, who fear it will limit the ability of central banks to cut prime interest rates to boost economies.
In the United States the 12-month inflation rate hit 4.3 percent in November, the highest level since June 2006.
Annual inflation in the 13 nations sharing the euro was running at 3.1 percent in November, well above the ECB's preferred level of close to but less than 2.0 percent.
In a statement the ECB said that during the two-week market refinancing operation (MRO) beginning Tuesday it would allow banks to borrow an unlimited amount of funds and would keep the rate at 4.21 percent, below the 4.9 percent market rate for similar operations over the past few days.
"Specifically, as a minimum the ECB will satisfy all bids at or above the weighted average rate of the MRO settled on 12 December, i.e. 4.21 percent," the bank said.
Since the US market for high-risk loans collapsed in August, central banks have been boosting liquidity into the banking sector to ensure that banks continue to extend credit to businesses.
On December 12 the European, US and Swiss central banks said they would provide more than 60 billion dollars to money markets over longer periods and under easier-than-usual conditions to calm the markets.
The Wall Street Journal reported that this would be only the second time in the ECB's nine-year history that it would offer an unlimited amount of funds at a fixed rate. The first time was on August 9 when financial markets first seized up as the US subprime mortgage market melted down.
ADVERTISEMENT
The ECB announced last week that it would exceptionally extend the MRO for two weeks.
In its Monday announcement, the ECB it told banks they can have a nearly unlimited amount of funds at the below-market level of 4.21 percent through the end of the year, a delicate time for financial institutions which need to close their accounting books.
For its part, the Fed began on Monday an operation to inject 20 billion dollars into the market. The results of that are to become known on Tuesday.
In another planned move, the Fed is expected to inject another 40 billion dollars into the market in the coming days.
ADVERTISEMENT
Markets worldwide have become increasingly jittery over the credit squeeze, the losses it has caused and implications the wider economy. Wall Street shares fell sharply Monday in the wake of a sea of red on European and Asian bourses.
"Wall Street remains concerned over the possibility of more huge writeoffs from global financial companies and the ramification those write-offs could have on the banks' ability to finance the global economic expansion," said Fred Dickson, strategist at DA Davidson & Co.
ADVERTISEMENT
Resurgent inflation has also been a concern of investors, who fear it will limit the ability of central banks to cut prime interest rates to boost economies.
In the United States the 12-month inflation rate hit 4.3 percent in November, the highest level since June 2006.
Annual inflation in the 13 nations sharing the euro was running at 3.1 percent in November, well above the ECB's preferred level of close to but less than 2.0 percent.
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
