ECB unveils new market measures

Oct 29, 2008
The Straits Times
ECB unveils new market measures

FRANKFURT - THE European Central Bank published details on Wednesday of four operations aimed at keeping commercial banks supplied with euros and dollars in a bid to ease tension on crucial money markets.

The ECB said it would lend 103.1 billion euros (S$195 billion) to banks for three months starting on Thursday at its benchmark rate of 3.75 per cent.

A total of 223 banks had requested funds, the ECB said.

In a now regular weekly loan of dollars, meanwhile, the ECB said it had provided US$92.13 billion to 70 banks on Wednesday at a fixed rate of 1.91 per cent.

On Thursday, the ECB will make an unlimited amount of dollars available, again in the form of one-week loans, in two operations that will accept collateral in exchange for the funds in one case and euro cash in the other.

A fixed rate of 3.75 per cent would apply in the former case, while the latter would be carried out at a rate of US$0.000303 to the euro.

In what is called a foreign currency swap, the ECB will sell dollars for euros on Thursday at the rate of US$1.2090 per euro, and buy them back a week later at a rate of US$1.208697 per euro.

The difference, also called 3.03 swap points, is what commercial banks will pay for access to the US currency.

Central banks have essentially replaced interbank markets for now by providing unlimited amounts of liquidity, or cash, to ensure banks can meet minimum reserve requirements which underpin lending to the economy at large.

Money markets determine the availability of credit for vast numbers of people around the globe, from managers trying to fund their businesses to families and students seeking mortgages and personal loans. -- AFP