Loans -
Central bank auctions give loan market extra liquidity - 11/03/2008
|
The Central Bank as announced that a round of auctions to provide extra liquidity to drained financial markets will provide an extra $200bn (£99bn) to the world economy.
The US federal reserve in conjunction with the European Central Bank (ECB) and other world banks, hope the move will free up capital offered to customers, therby reducing loan rates.
This will come as light relief to both lenders and borrowers as the euro interbank rate reached its highest peak since Jan 9 earlier today at 4.60 per cent. The deal involves lending treasury securities in exchange for debt, including mortagage based deals. As a result, more confidence should be injected in the market, which is needed if the deal is going to gain momentum to avoid further peaks in loan rates.
Already the signs show that the move has had an impact with the FTSE 100 soaring 2.6 per cent to 5,777.4, US Nasdaq up 2.4 per cent at 2,221.27 and the Dow Jones up 2.3 per cent to 12,014.42. This was only an hour after the announcement was made.
Long term, the worry is that if banks keep selling securities without any sustainable impact then they will have nowhere else to turn in order to raise cash for loans. For today the news is very welcome, but the UK still needs to curb rising short term interest rates first, which stand at their highest level for two months at 5.79. This is where this extra liquidity needs to make an impact.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Loan quotations are provided by Leadbay
Ltd. Leadbay Ltd is authorised and regulated by the Financial
Services Authority. |
|