Libor rises to 6% despite central banks’ billions

by Gill Montia

Story link: Libor rises to 6% despite central banks’ billions

The London interbank lending rate (Libor) has risen to 6%, its highest level for 12 months and well above the current 5.25% base rate.

Libor is a crucial indicator of the severity of the credit squeeze because it is the rate at which banks lend to one another. A rise reflects increasing liquidity pressures in funding markets.

In the past fortnight, the Bank of England and other central banks have provided billions of pounds and dollars of emergency funding to ease the lending freeze.

However, when addressing a committee of MPs today, the Governor of the Bank of England, Mervyn King, conceded that: “The co-ordinated measures the central banks took in March did not work.”

Mr King added that the Bank is now looking at “longer-term” solutions to the credit crisis, explaining: “There has been a much greater sense in the last few weeks of this lack of confidence and fragility and that is a matter we are trying to deal with.”