Cost of borrowing over 6%

by Richard Kilner

Story link: Cost of borrowing over 6%

Thursday saw the cost of borrowing between lenders pass the 6% mark, the first time it has done so since late 2007.

The alarming rise is being attributed to the persisting tightness of the credit markets, which shows little sign of rescinding.

In an effort to ease the difficult credit conditions the Bank of England has been auctioning money on weekly basis, and the demand is certainly there for it.

Yesterday’s auction saw banks bid for almost three times the quantity of cash on offer, and the previous week had seen a similar oversubscription.

Other central banks across the world have been taking similar measures, and the European Central Bank has pledged to add liquidity at the quarter’s end, if necessary.

Over the last few days shares in banks have improved substantially following a slump thought to be caused by unscrupulous traders starting false rumours.

The increasing cost of lending has led banks to limit their lending.