April 10, 2019 / 1:31 PM / 13 days ago

MONEY MARKETS-Dollar LIBOR posts biggest rise since mid-December

NEW YORK, April 10 (Reuters) - A key barometer of interbank borrowing costs for dollars recorded its steepest daily increase since mid-December on Wednesday, even as most wholesale borrowing costs fell or remained stable from the day before.

Bets that the U.S. Federal Reserve might cut interest rates later this year to counter a slowing economy have lowered lending costs between banks since March.

The London interbank offered rate (LIBOR) to borrow dollars for three months increased to 2.60350%, up 2.225 basis points, marking its biggest one-day rise since Dec. 20.

Three-month LIBOR on Tuesday fell to 2.58125%, the lowest since Oct. 31.

LIBOR is the benchmark rate for $200 trillion worth of dollar-denominated financial products, mainly interest rate swaps and floating-rate loans.

In December, LIBOR reached its highest in more than a decade at 2.82375%, propelled by Fed’s interest rate increases, rising U.S. government borrowing and a shrinking Fed balance sheet.

Looser lending conditions since the start of the second quarter helped stabilize the federal funds rate, which is what banks charge each other to borrow excess reserves overnight.

The fed funds rate, which the Fed targets to conduct its monetary policy, averaged at 2.41% for a seventh trading session on Tuesday, New York Federal Reserve data released on Wednesday showed.

The average or “effective” federal funds rate’s premium above what the U.S. central bank pays on the excess reserves (IOER) stayed at 1 basis point.

On March 29, the spread on the fed funds rate over IOER widened to 3 basis points, which was the highest premium ever between the two rates.

Reporting by Richard Leong; Editing by Bernadette Baum

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