Central banks continue to make waves, inject billions into markets
Posted on September 16th, 2008 by bile Tags: central bank, EUR, European Central Bank, GBP, The Bank of England, The Bank of Japan, The Swiss National Bank, USD 2 Comments »Central banks around the world pumped short-term cash into strained money markets for the second day in a row Tuesday as markets reeled amid a fast-moving crisis that is reshaping the contours of the global financial system.
With interest rates on the overnight loans banks make to one another rising sharply on market unease, European policy makers boosted the amount of funds on offer. The European Central Bank injected €70 billion ($100.17 billion) in one-day funds into euro-zone money markets, more than double its Monday injection of €30 billion. The Bank of England offered £20 billion ($36.05 billion) in extra two-day funds, atop Monday’s £5 billion in extra three-day funds.
The Swiss National Bank also made extra overnight funds available, but a spokesperson declined to say how much. The Bank of Japan injected ¥2.5 trillion ($23.84 billion) into Japanese money markets in two separate operations.
Demand surged as commercial banks scrambled for short-term cash. Bids from 56 financial institutions totaled more than €102 billion in the ECB’s auction, which set the central bank’s policy rate of 4.25% as the minimum bid rate. The Bank of England said bids totaled £58.1 billion, more than triple the £20 billion on offer.
Think of this kind of action as someone kicking the side of a kiddie pool in order to try to counteract the waves created by someone inside it… without being able to see the water’s movement. You don’t have enough information to cancel it out. You’ll just make the water more turbulent.
The best thing the central banks and governments can do is nothing.
