Dollar fund rates ease in Asia, more falls seen

Hong Kong: The cost of borrowing dollars in Asia fell for the third straight day on Friday, as moves by central banks across the world to improve the availability of dollars infused confidence in financial markets.

The Bank of Japan was the latest central bank to cut interest rates following similar moves by the US Federal Reserve and central banks in China, Hong Kong and Taiwan.

The BOJ cut its overnight call rate target to 0.30 per cent from 0.50 per cent, its first reduction in seven years.

Meanwhile, policymakers at the European Central Bank said it could cut interest rates next week as eurozone economic growth could be close to zero next year.

"We see clear commitments from central banks around the globe, that they are prepared to provide sufficient liquidity to get markets functioning again," said Patrick Bennett, Asia foreign exchange and rates strategist at Societe Generale.

Interbank overnight dollar deposits were quoted around 0.4 per cent in Hong Kong, around 0.3 per cent in Kuala Lumpur and 0.40-0.90 per cent in Singapore.

On Thursday, rates for overnight dollar funds were quoted at 0.75-1.0 per cent in Hong Kong, 0.7 per cent in Kuala Lumpur and 0.75-1.25 per cent in Singapore.

In response to the Fed's new target rate of 1.0 per cent, the overnight rate on unsecured dollars in the London interbank market was set at 0.73125 per cent, its lowest since at least 2001.

And although the premium or spread paid for borrowing three-month dollars over anticipated central bank rates, the Libor/OIS spread has been narrowing, analysts say the differential needs to reduce further.