Interbank Rates Hit Record Lows
Interbank lending rates hit a record low on Wednesday (Nov.18) as investors speculated that governments and central banks will keep stimulus programs in place well into 2010. The LIBOR three month dollar rate (London interbank offered rates) fell to 0.26906% while the euro LIBOR rate rose slightly to 0.67500% according to the British Bankers Association. The pound LIBOR fell after minutes from the Bank of England’s meeting showed that the central bank may expand the bank’s quantitative easing programs to 200 million pounds. ($334,815,776 USD) Stephen Lewis of Monument Securities stated, “A reduction in this rate would bear down on short-term market rates, perhaps shaving a few basis points off borrowing costs. Probably wisely, members decided that any easing in monetary conditions achieved by this means would be on a scale unlikely to make much difference to demand in the economy. However, the MPC agreed to keep the remuneration rate under review.”
Fed Will Keep Rates Low
Rates in money markets have hit record lows as record low interest rates and central bank injections of liquidity have combined with policymaker’s promises of the continuation of stimulus programs are keeping rates at record lows. Last week the US Federal Reserve indicated that it would continue to keep interest rates near zero in an attempt to stimulate US economic recovery. In the euro zone there is a continuing debate on how much the ECB will inject in one year funds into a market already flooded with cash.
Dollar Declines Against Major Currencies
On Wednesday the US dollar fell against most major currencies as investors took profits on the dollar’s recent rally and the view that US rates will remain low well into 2010. Many traders say the greenback’s long term fall will continue because although the Federal Reserve has indicated it may withdraw some stimulus measures it is still a long way from raising interest rates. St. Louis Federal Reserve President James Bullard indicated that the Fed will tighten policies by adjusting emergency asset purchasing programs instead of raising interest rates.
