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Central banks inject billions more
Central banks across the world scrambled to meet desperate demand for cash yesterday, with Europe's big three offering billions of one-week dollars for the first time to break a quarter-end money market logjam.
- Reuters
- Published: 21:38 September 26, 2008
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Frankfurt/Sydney : Central banks across the world scrambled to meet desperate demand for cash yesterday, with Europe's big three offering billions of one-week dollars for the first time to break a quarter-end money market logjam.
As the financial crisis went from bad to worse, the European Central Bank stumped up $35 billion, the Bank of England offered $30 billion and the Swiss National Bank put up $9 billion of one-week money.
Demand from cash-hungry banks, particularly for the ECB cash, was hefty as lending between banks on money markets remained virtually paralysed.
"There is no term lending of note between counterparties. Any term funding there is coming from the central banks," said Meyrick Chapman, rates strategist at UBS.
In Asian time, the central banks of Japan, Australia and South Korea also pumped in cash to lubricate their markets.
The Reserve Bank of Australia (RBA) launched its first ever repurchase operation in US dollars and all $10 billion on offer was hungrily snapped up. The RBA established a US dollar swap line with the Fed earlier in the week.
In South Korea, the Fin-ance Ministry said it would inject $10 billion or more into the local swap market until the middle of October to stave off persistent dollar funding shortages.
The RBA and the Bank of Japan also kept adding extra cash to their own banking systems on Friday.
The Bank of Japan pumped a total of 1.5 trillion yen ($14 billion) into the Tokyo money market, according to data on its website.
But the central bank later drained 300 billion yen as its key overnight call rate stabilised at around the target level of 0.5 per cent.
The BoJ and other major central banks are working together to ensure a flow of liquidity due to a credit crunch that pushed Leh-man Brothers into bank-ruptcy.
As negotiations over an unprecedented $700 billion US bailout faltered, news that Washington Mutual, the largest US savings and loan bank, was taken over by authorities and its deposits auctioned off only added to the thirst for liquidity.
In early London trade, the interbank cost of borrowing dollars for three months was indicated at the upper end of a wide range between 3.7 and 4.8 per cent.
And the key three-month Euribor rate jumped to the highest level since early 1995, hitting 5.142 per cent.
Stress was exacerbated by the looming quarter-end.
Any three-month lending now will mature over the Christmas period, when markets are either closed or highly illiquid.
"These operations are designed to address funding pressures over quarter-end," said a statement from the Federal Reserve, which expanded its dollar swaps facilities with other central banks.
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