The Bank of England (BoE) has acted to ease the continuing credit crunch hitting financial markets. It has increased the amount of cash banks can deposit with it and then use when they need overnight funding.
The move could ease the rates banks are charging each other for short-term loans, which have soared on worries about risky investments.
However these Libor rates remained high despite the intervention.
The Bank's action comes a day before it sets the UK's base interest rate, which is forecast to stay at 5.75%.
The BoE's move means that when banks need additional funds they will be able to draw on the extra money they are now effectively saving with the Bank of England.
The Bank is basically providing additional cheap finance to the banks to meet any short term requirements they might face.
Will our timid Fed become more aggressive? I think so. They will have to undo the damage created by a too aggressive easing (by Greenspan) and a prolonged tightening under Bernanke.
I believe the current crisis will have beneficial effect on the financial markets.
Bonds have acted as I predicted and providing superb returns. Equities will be next.
More on http://www.peterdag.com/.
George Dagnino, PhD
Editor, The Peter Dag Portfolio
Since 1977
1 comment:
If the Fed cuts rates on September 18, will the dollar just freefall? And where is all this liquidity going and what are the ramifications of a soaring money supply and added liquidity by the world's Central Banks?
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