ECB cash helps banks regain confidence as Euribor rates are cut
The ECB has also signalled it's ready to follow its emergency interest-rate cut on October 8, with another reduction next week. Photo: JOHN MACDOUGALL/AFP/Getty Images
Friday October 31 2008
Euribor, the euro rate that banks charge each other for three-month loans, fell more than 3 basis points to 4.79pc, the lowest level since last April, according to the European Banking Federation.
The one-month rate declined 3 basis points to 4.48pc, EBF data showed yesterday.
The fall came as the European Central Bank's (ECB) lending to financial institutions surged to a record high as it pumped extra cash into the banking system to ease a funding gridlock.
The Frankfurt-based central bank said its outstanding euro loans to banks rose to €773.7bn yesterday, the largest amount ever, from €753.1bn a day earlier. The figure does not include the ECB's dollar loans.
Lending between banks ran dry after Lehman Brothers Holdings filed for bankruptcy on September 15, shattering confidence among lenders.
Money-market rates in London are falling after governments bailed out banks and policy makers intensified efforts to encourage lending with cash injections. The ECB has also signalled it's ready to follow its emergency interest-rate cut on October 8, with another reduction next week.
"There is a slight thaw in the credit freeze, but it's by no means back to anywhere near normal,'' said Padhraic Garvey, head of investment grade debt strategy at ING Bank NV in Amsterdam.
Responding
"Short-term money markets are responding to the liquidity flood from the ECB and the prospect of lower interest rates, but we are not out of the woods on longer term lending.''
The US Federal Reserve yesterday cut its benchmark rate by half a percentage point to 1pc and ECB President Jean-Claude Trichet said earlier this week he's likely to reduce borrowing costs at the next policy meeting on November 6. The ECB's key rate is currently 3.75pc.
In a sign banks remain reluctant to lend to each other, they deposited €215.9bn with the ECB overnight at 3.25pc. Overnight deposits exceeded €200bn for the last 10 out of 11 days. (Bloomberg)
