Time is GMT + 8 hours Posted: 1-Oct-2008 23:37 hrs
European Central Bank president Jean-Claude Trichet speaks at a conference in Bratislava on September 22. The European Central Bank has offered another 50 billion dollars (35 billion euros) to the commercial banks in one-day funds as it tries to keep the cash flowing in troubled money markets.
The European Central Bank on Wednesday offered another 50 billion dollars (35 billion euros) to commercial banks in one-day funds as it tried to keep the cash flowing in troubled money markets.
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The ECB reported strong demand, saying 61 bidders sought nearly 71 billion dollars and took the money at 3.25 percent.
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In a separate move, which the bank called a "fine-tuning operation," the ECB siphoned 173 billion euros (244 billion dollars) out of eurozone markets at a rate of 4.25 percent.
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On Tuesday, the ECB offered one-day dollar funds twice -- 30 and 50 billion dollars -- with the first tranche seeing very high demand and a consequently very high rate of 11 percent.
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The second tranche was undersubscribed, with the rate tumbling to 0.5 percent.
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Wednesday's dollar operation appeared to be an attempt to find some middle ground.
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The call for banks to turn in surplus euros meanwhile was made after the ECB determined that commercial banks had more than they needed to cover minimum reserve requirements.
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ECB officials had offered to take back up to 200 billion euros however, so banks nonetheless appeared to want to keep a bit more on hand even though a crunch period at the end of the third quarter had passed.
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ECB officials constantly calculate the amount of cash in the eurozone money markets and adjust the sum in fine-tuning operations that inject or withdraw funds as necessary to keep rates as close as possible to its benchmark of 4.25 percent.
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The bank also wants to prevent the money supply from becoming too large, which would fuel inflation.
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Commercial banks generally lend and borrow cash from each other on interbank markets but these have come under pressure since the US market for high-risk, or subprime, mortgages collapsed more than a year ago.
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The ECB and other major central banks have been injecting huge amounts of cash into the money markets to ease the turmoil stemming from the crisis in the US financial sector which took a sharper turn after US investment bank Lehman Brothers went bankrupt.
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On Monday, the ECB and the US Federal Reserve agreed to double the amount of funds they traded with each other, also known as swap lines, to a total of 240 billion dollars.
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That move will allow the ECB to provide more dollars directly to eurozone banks.
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Some analysts question whether the central bank operations will work however, saying that commercial lenders soak up the extra cash but still do not lend to each other or extend it as credit to businesses.
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Rather, they are reportedly using some of the funds to buy government bonds because these are presently considered one of the safest investments. — AFP
