Banks trim rates before European central bank moves
NEW YORK (Reuters) - Banks trimmed the loan rates they charge each other on Thursday ahead of rate cuts from several European banks, led by Bank of England's whopping 1.50 percentage point move.
The decline in interbank rates is approaching a one-month anniversary as a massive government move to thaw the global credit freeze has taken hold.
Continued improvement in bank lending conditions was accompanied by revived activity in the U.S. commercial paper market, offering another option for companies to fund their daily operations, analysts said.
"This will help the inter-bank market, as will the reduced reliance that U.S. companies will have on bank credit lines as a result of the reopening of the CP market," said Tony Crescenzi, chief bond market strategist with Miller Tabak & Co in New York.
The most dramatic move in the closely watched unsecured lending market in London was in sterling, as traders had anticipated a half percentage point cut from the BoE.
The overnight interbank rate on sterling fell to 4.00000 percent, its lowest since August 2004, according to the British Bankers' Association's daily fixings on Thursday.
Euro and dollar Libor levels also fell.
After daily BBA fixings were set, the U.K. central bank surprised the market and slashed benchmark rates by 1.50 points, to 3.00 percent, the lowest since 1954. The size of the rate cut was the biggest since the recession in 1981.
The European Central Bank, Swiss National Bank and Denmark's central bank followed with half-point cuts.
The easing in policy rates has been among the numerous measures central banks have been using to unlock credit and avert a deep, protracted global recession.
CP ACTIVITY REVIVED
The supply of U.S. commercial paper rose on Wednesday for the first time in five sessions, signaling revived activity in this credit sector, according to Federal Reserve data released on Thursday.
Overall issuance of this type of short-dated corporate IOUs was $158.84 billion on Wednesday, up from the $148.97 billion on Tuesday.
Last week the Fed launched a program to buy top-rated, three-month commercial paper to buttress this critical source of funding for many U.S. companies. The backstop measure caused a brief spike in daily issuance and the amount of CP outstanding, which had been shrinking prior to the start of the Fed's Commercial Paper Funding Facility.
For the week ended Nov 5. the size of the U.S. commercial paper market rose to $1.600 trillion, from $1.550 trillion the previous week. Continued...
