Measures of interbank lending continued to decline on Thursday as market are adjusting to the Fed's aggressive monetary policy actions from two days ago.
The British Bankers' Association said that overnight U.S. dollar Libor fell another 2 bps to 0.11% and the three-month Libor fell 5 bps to 1.53%, perpetuating the downturn in interbank lending rates.
According to newspaper reports, central banks across the globe have been under pressure to ease interest rates after the Fed brought rates to a bind of 0.0% to 0.25%, the lowest in the G7.
The Bank of Japan will be making its monetary policy decision this evening and while the central bank is expected to hold rates unchanged at 0.30%, there are suggestions that a rate cut could be in the works, particularly given the yen's sharp appreciation against the US dollar.
Meanwhile, Bloomberg reported on Thursday that the European Central Bank might cut the rate paid on bank reserves as early as today in an effort to stimulate interbank lending.
Also on Thursday, the BBA asked banks not to include transactions costs in their reporting of their rates, which would put additional downward pressure on the rates.
The Ted spread narrowed 6 bps to 151 bps and the Libor/OSI spread narrowed 5 bps to 133 bps.
By Erik Kevin Franco and edited by Nancy Girgis
©CEP News Ltd. 2008