Central banks from across the globe have united to provide billions in loans to alleviate liquidity concerns.
In a co-ordinated move, the Bank of England, European Central Bank, Federal Reserve, Swiss National Bank and Bank of Canada are taking measures to “address elevated pressures in short-term funding markets”.
The move is aimed at providing funds to banks struggling with the tightening credit conditions.
The Bank of England has already scheduled long-term repo open market operations on 18 December and 15 January, in which they will offer up to £11.35bn, of which £10bn is at 3-month maturity.
RLAM economist Ian Kernohan says the move shows just how serious the illiquidity issue has become.
“For monetary policy to work, it is important that changes in Bank Rate are passed on to money market rates and this just wasn’t happening,” he says.
“If it works, and it’s too early to tell at the moment, this action reduces some of the downside risks to growth in 2008, but it doesn’t change my view that the UK economy will slow appreciably or that interest rates will be cut again early next year.”
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