Interbank lending rates ease as £250 billion injected into markets

by Gill Montia

Story link: Interbank lending rates ease as £250 billion injected into markets

Interbank lending rates have eased in both the UK and the eurozone after the Bank of England and the European Central Bank (ECB) injected £250 billion into the money markets early this week.

The Bank of England auctioned £10 billion in three-month lending, which was fully taken up.

The highest bid for the money was at 6.6%, well over the Bank’s 5.5% base rate and above the London Interbank Offered Rate (Libor).

This could suggest that one or more financial institutions are having difficulty borrowing from other banks.

The ECB auction of funds was unlimited and received bids from 390 commercial eurozone banks.

It provided €348.6 billion of two-week funds, lending money to any institution that offered 4.21% or above.

The Bank of England has received sustained criticism for its strategy in the UK money markets, with accusations that it has been less effective than the ECB or the US Federal Reserve.

However, the Bank’s latest action has brought Interbank three-month Libor rates in sterling, dollars and the euro to identical levels.

Mervyn King, the Bank’s governor, is reported as stating that he regrets failing to speak out in August of this year, when the credit squeeze began, to explain how money markets work.