Friday, August 10, 2007

ECB injects a fresh €61bn into markets

ECB injects a fresh €61bn into markets
By Richard Milne in Frankfurt
Copyright The Financial Times Limited 2007
Published: August 10 2007 11:46 | Last updated: August 10 2007 11:46

The European Central Bank took more emergency action to try to calm jittery markets on Friday by lending €61bn to institutions over the weekend.

A day after injecting an unprecedented €95bn into money markets, the ECB said it received bids totalling €110bn on Friday but decided to lend €61bn after setting an average rate of 4.08 per cent, just above its main interest rate of 4 per cent.

It follows concerted action from central banks in North America and Asia to inject liquidity to calm fears of a credit crunch and allow borrowers to meet short-term lending needs.

The Bank of Japan became the latest central bank to inject funds into the market to alleviate fears of a credit squeeze.

The BoJ injected a relatively modest Y1,000bn ($8.5bn) after the call rate rose to 0.54 per cent against the bank’s 0.5 per cent overnight target.

Other Asian central banks sold the US dollar and tried to reassure markets that any effects of any credit crisis would be limited as exposure to subprime loans in the region is relatively low.

Monetary authorities of Singapore and Hong Kong said they were monitoring markets but saw no need to inject cash for now.

The Bank of Korea said it would provide liquidity to financial markets should a credit crunch arise due to the US subprime crisis.

Shares fell across Asia in heavy selling. South Korea led the drop in equities, with the Kospi down 4.2 per cent.

In Tokyo, the Nikkei 225 average closed at a 5-month low, while in Sydney, the S&P/ASX 200 suffered its heaviest daily fall since the attacks on the United States in September 2001.

Some analysts had criticised Thursday’s ECB intervention for offering banks unlimited relatively cheap money and potentially stoking the panic by the size of its issue.

In contrast, Friday’s tender was a three-day offer and was set at a variable rate allowing the ECB to decide how much money to inject into markets. 62 banks bid on Friday compared with 49 on Thursday.


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