The European Central Bank injected dollars into the euro-region banking system for a second day this week to encourage lending among financial institutions.
The Frankfurt-based bank said it loaned banks $68 billion (€52.6 billion) in a seven-day dollar tender at a fixed rate of 2.03 per cent. It also provided an additional $3.85 billion, also for seven days, via a currency swap against euros.
The operations are the ECB's latest effort to restore confidence as lending between banks ran dry after Lehman Brothers Holdings Inc. filed for bankruptcy on September 15th, sending borrowing costs to records.
Money-market rates in London yesterday fell to the lowest since the collapse of Lehman after governments bailed out banks and central banks intensified efforts to combat the lending freeze with cash injections.
"Financial markets will stabilize overall because the coordinated measures of the past weeks will show a positive impact," ECB council member Ewald Nowotny said in an interview with Austria's Falter magazine published today. "There can still be setbacks, but I believe that the turning point has been reached."
Still, in a sign that banks remain reluctant to lend to each other, they yesterday lodged €230.8 billion ($298 billion) in the ECB's overnight deposit facility at 3.25 per cent, up from €228.5 billion the day before.
They also borrowed €14.6 billion from the ECB at the emergency overnight marginal rate of 4.25 per cent.
"The turmoil is still affecting international markets.'' ECB Executive Board member Jose Manuel Gonzalez-Paramo said today. "Confidence is coming back, slowly coming back,'' he told Irish television channel RTE last night.
The ECB said the premium it will charge in today's currency swap for taking foreign-exchange risk is 2.45 swap points.
It will loan dollars for euros at a conversion rate of $1.2252 and convert the dollars back to euros at a forward rate of $1.224955. The difference is 0.000245, or 2.45 swap points.
Bloomberg