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Dollar 3-month interbank lending rate rises
02 February 2009 @ 21:51

The cost of three-month dollar loans between banks rose Monday to the highest level since Jan. 9 on worries that a deeper economic downturn will keep the financial sector under pressure.

The rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — rose 0.05 percentage points to 2.23 percent, according to the British Bankers' Association. Since the start of the year, decreases in the rate have leveled off and become increases as concerns about the banking sector re-emerged.

The equivalent rate for pounds fell to a new record low of 2.16 percent from 2.17 percent Friday.

The rate for three-month loans in euros — known as the European Interbank Offered Rate, or Euribor — decreased to 2.08 percent from 2.09 percent on Friday.

Interbank rates are important because they affect the cost of loans in the wider economy, for both businesses and individuals. Rates shot higher during the financial crisis as banks hoarded cash and worried that other lenders might collapse and not pay them back.

All three lending rates remain well above the benchmarks set by central banks — of 0-0.25 percent in the U.S., 2.0 percent in the 16-nation euro zone and 1.5 percent in Britain. Wide spreads, or differences from benchmarks, is a sign of distress in the financial system.

However, they have mostly fallen since the autumn after massive intervention from governments and central banks — which on top of the latest fiscal stimulus plans included trillions of dollars in bank debt guarantees, pledges to rescue ailing banks, liquidity injections by central banks and interest rate reductions.



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