Flush with cash
On a practical front, central banks were doing their part to keep markets flush with liquidity, with the Fed, the Bank of Japan (BOJ) and the European Central Bank (ECB) injecting no less than US$120 billion into the banking system on Wednesday.
The Fed alone pumped US$38 billion in temporary reserves into the system, around 10 times the daily average. It also "substantially elevated" the discount window borrowing, a major concession to commercial banks since they can borrow at just 3 percent, half a point below the usual funds rate.
The ECB has a scheduled policy meeting later yesterday, though analysts assume a cut is unlikely given the bank President Wim Duisenberg on Wednesday said it might prove counterproductive to rush into hasty moves.
Nevertheless, a Reuters poll of analysts found many had raised the odds of an easing, particularly if the Fed were to take early action.
The Fed's next scheduled meeting is on Oct. 2 but the bank is not shy of taking aggressive action and has already twice cut rates between meetings this year.
Fed Chairman Alan Greenspan was back at his desk in Washington on Wednesday, having hitched a lift from Switzerland on a military flight, and markets were awash with talk that he would arrange an emergency cut, perhaps in the next few days.
There was also speculation the BOJ could take further easing steps at its policy meeting next Tuesday.
Early yesterday, BOJ Policy Board member Toshio Miki said the Japanese economy was moving backwards and the bank was studying ways to stem deflation.
RSS