Short-Term Rates Rise Despite Central Bank Efforts

By Jennifer Yousfi
Managing Editor

Interest rates for short-term loans with a maturity of three months or less continue to inch up, despite moves by global central banks to restore liquidity in the markets.

"There's really only a handful of banks that are offering cash," Ronald Tharun, a money-market trader at a unit of Landesbank Baden-Wuerttemberg, Germany's biggest state-owned bank, told Bloomberg News. "Everyone is just waiting for the next bank to go down. There is no trust in the market. They're very afraid."

Story continues below...

Central banks including the U.S. Federal Reserve, European Central Bank and Bank of England have poured billions of dollars into the world financial markets in an effort to restore lending confidence.

After over $200 billion in losses and write-downs since the subprime crisis began in 2007 and the recent collapses of The Bear Stearns Cos. Inc. (BSC), even prime borrowers are having trouble finding willing lenders.

That $200 billion could easily grow to $460 billion, Andrew Tilton, New York-based senior economist at Goldman Sachs Group Inc. (GS), wrote in a recent report, Bloomberg reported. With a figure that high, investment banks are hoarding capital to cushion against the next round of write-downs and reluctant to lend.

The European Central Bank pumped $336.5 billion (216 billion euros) into the financial markets yesterday (Tuesday), but the marginal rate for borrowing in euros still rose to 4.23%, up from 4.16% just last week.

"There's still a lot of uncertainty in the market," Jan Misch, money-market trader at Landesbank Baden-Wuerttemberg in Stuttgart told Bloomberg. "Banks are hesitant to lend among each other and nervous due to the closing of the quarter."

Interbank rates are expected to remain elevated until after the quarter-end on Monday.

News and Related Story Links: