Inter-bank lending rate inches down

A gradual thaw in frozen money markets as global bailouts take effect has seen lending rates between nervous banks inch lower.

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Three-month borrowing costs between banks, which are used to price mortgages, drew back from 6.25% to 6.21% - although that is still well above the Bank of England's official 4.5% interest rate.

Overnight the inter-bank cost, known as the Libor rate, fell back from 5.43% to 5.38%, according to the British Bankers' Association's latest data.

A bid to get inter-bank money markets moving again has seen Governments and central banks around the world pump hundreds of billions into the system to make funds available to cash-starved banks and shore up their balance sheets.

In the UK, the Government has put £37 billion into three major banks in return for share stakes. It has also guaranteed around £250 billion in wholesale lending in return for a fee and extending the Bank of England's special liquidity scheme by £100 billion.

Howard Wheeldon, senior strategist at inter-dealer broker BGC Partners, said: "Slow though it is, Libor rates are at last showing small signs of responding, though clearly it will take a very long time before we are back to anything like the norm."

Copyright © PA Business 2008

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