Filed under: Forecasts, Federal Reserve, Recession, Financial Crisis

The thaw in credit markets continues.

Interest rates for one-week loans in dollars fell considerably early Tuesday, after the United States Government announced it would invest $250 billion in banks, in a recapitalization plan that mirrors those announced by Europe’s major powers on Monday.

The London one-week rate for dollar loans decreased 50 basis points to 4.08%, Bloomberg News reported Tuesday. Meanwhile, the LIBOR-OIS spread, a gauge of cash demand, fell 14 basis points to 340 basis points. The TED spread, the difference between what banks and the U.S. Treasury pay to borrow money for three months, fell 12 basis points to 445.

Short-term rates, including overnight rates, are key sources of cash for corporations and other large institutions, which use the cash to pay suppliers, make payroll, roll over debt etc. Hence, very high overnight and short-term rates will discourage corporations from conducting business, restricting commerce and slowing the economy, economists say.

Action seen further reducing banks’ anxiety

Economist Peter Dawson told BloggingStocks Tuesday the actions taken this weekend and over the past two days by industrialized nations and their respective central banks will continue to loosen credit markets and decrease anxiety that’s tightened the flow of money, globally.

Continue reading Short-term interest rates drop on U.S. bank rescue plan

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This entry was posted on Wednesday, October 15th, 2008 at 5:01 pm and is filed under Stocks Money News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.