ECB offers banks funds at fixed rate to increase liquidity
FRANKFURT (AFP) — The European Central Bank said that beginning Tuesday it would offer banks unlimited funds at a fixed interest rate, a rare move aimed at injecting liquidity into markets hit by the US subprime mortgage crisis.
In a statement late on Monday the ECB said that during the two-week market refinancing operation (MRO) it would allow banks to borrow an unlimited amount of funds and would keep the rate near 4.21 percent, below the 4.9 percent rate for similar operations over the past few days.
"Specifically, as a minimum the ECB will satisfy all bids at or above the weighted average rate of the MRO settled on 12 December, i.e. 4.21 percent," the bank said.
Since the US market for high-risk loans collapsed in August, central banks have been boosting liquidity into the banking sector to ensure that banks continue to extend credit to businesses.
The ECB Bank on December 12 said it would take joint action with the US Federal Reserve and other institutions to inject cash and confidence back into very tight eurozone money markets.
