Dollar 3-month interbank lending rate down a bit

Dollar 3-month interbank lending rate down a bit

February 9, 2009

LONDON (AP) - The cost of three-month dollar loans between banks fell modestly Monday but remained relatively high amid ongoing worries that lenders continue to face funding problems despite government efforts to shore up their finances and free up credit markets.

The British Bankers' Association said the rate on three-month loans in dollars — known as the London Interbank Offered Rate, or Libor — fell 0.01 percentage points to 1.23 percent.

The rate for three-month loans in euros — known as the European Interbank Offered Rate, or Euribor — decreased around 0.02 percentage points to just above the European Central Bank's 2 percent benchmark rate.

Meanwhile, the equivalent three-month sterling rate fell nearly 0.02 percent to 2.10 percent.

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

Though the interbank lending rates have fallen from previous highs in the wake of large interest rate cuts around the world and massive central bank liquidity provisions, all three rates remain above the levels markets think benchmark interest rates will be in three months.

Though the U.S. Federal Reserve cannot cut its benchmark rate further from the current 0-0.25 percent, the European Central Bank is expected to reduce its rate again from the 2 percent benchmark, and the Bank of England is expected to cut its rates further in the coming months from its record low of 1.0 percent.

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