The European Central Bank pumps €75 billion into banking system
The European Central Bank was pumping another 75 billion euros ($104 billion) into the banking system, in a bid to calm chronic jitters sparked by the US high-risk mortgage market.
In a move aimed at giving euro money markets a bit more air, the ECB said in a statement to the markets that the cash had been made available via an exceptional three-month tender at a marginal or lowest rate of 4.35 percent and a weighted average rate of 4.52 percent.
The rates were high compared with the ECB's current main lending rate of 4.0 percent and the sum also exceeded the bank's normal refinancing amount of 50 billion euros.
Lately, the bank had made another three-month injection of liquidity into euro markets, where rates have risen owing to uncertainty about the impact of the US high-risk home loan crisis on the global economy. That move was supposed "to support a normalisation of the functioning of the euro money market," an ECB statement had said, a goal that has eluded several previous attempts.
The same day it pumped €42 billion more into the system via a one-day tender, the first in three weeks. Several central banks, including the US Federal Reserve, the ECB and the Bank of Japan, have injected massive amounts into money markets since August 9 so that commercial banks continue to extend credit on which the global economy depends.
Institutional lenders tightened credit conditions last month following the collapse of the US market for high-risk mortgages, also known as the subprime market. Following repeated interventions between August 9-14, the ECB had said it saw markets returning to normal, but was forced last week to acknowledge they remained volatile.
Experts nonetheless say the issue is less one of sufficient liquidity than fears the subprime crisis would turn out to have a much bigger effect than initially thought.