The European Central Bank has done it again, offering cash to euro-region money markets for a third trading day to avert a credit crunch, reports Bloomberg.
In a statement, the ECB said it was “further supporting the normalisation of conditions in the money market,” noting that “money market conditions are normalizing and that the supply of aggregate liquidity is ample.” The ECB, the Fed and other central banks injected $154bn into money markets on Thursday and $135.7bn on Friday amid concern that US subprime mortgage losses would curtail lending. Asian central banks on Monday, with the exception of the Bank of Japan, reports Reuters, refrained from joining US and European counterparts in pumping additional cash into their markets but pledged to help if required.
If the amount allotted in Monday’s tender decreases, “it would be a sign that market conditions are normalising,” Christoph Balz, an economist at Commerzbank in Frankfurt, told Bloomberg. “Market conditions have improved, but it’s too early for an all-clear.”
The overnight rates banks charge each other to lend in dollars soared to the highest in more than six years on Thursday while the overnight euro rate rose as high as 4.155 per cent on Monday, compared with the ECB’s benchmark refinancing rate of 4 per cent, added Bloomberg.