This story was printed from TODAYonline 
Thursday • October 2, 2008
The European Central Bank (ECB) renewed on Thursday one-day loans of 50 billion dollars (35 billion euros), in what has become a regular effort to keep cash flowing on distressed interbank money markets.
In a separate operation, the ECB said later that it would siphon up to 200 billion euros (280 billion euros) in surplus cash from eurozone money markets now that the end of the third quarter had passed.
The results of the dollar offer, including demand and the rate at which the dollars are lent, were to be released later in the day.
A loan of 50 billion dollars on Wednesday had been met with strong demand, and banks had sought a total of 70.927 billion dollars, while paying a rate of 3.25 percent for the funds that were available.
The euro withdrawal would be made with the ECB offering its benchmark interest rate of 4.25 percent for funds it has calculated the banks no longer need.
Money markets had been generously supplied with euros to ease tension at the end of September, when commercial banks squared their books before heading into the fourth quarter.
But the ECB carefully monitors the amount of cash in circulation and adjusts it through so-called "fine-tuning" operations that keep rates close to its benchmarks and prevent excess supply from fueling inflation.
Commercial banks generally lend and borrow cash from each other on interbank markets but these have dried up since the US market for high-risk, or subprime, mortgages collapsed more than a year ago.
The ECB and other major central banks have been pumping huge amounts of cash in the form of loans to ease turmoil stemming from the latest crisis in the US financial sector, after the investment bank Lehman Brothers went bankrupt last month.
Some analysts question whether the central bank moves are working however, saying that commercial lenders soak up the extra cash but do not lend to each other or extend it as credit to businesses.
They reportedly use some of the funds to buy government treasury bills because they are presently considered one of the safest investments. — AFP