After flooding eurozone money markets with cheap cash, the European Central Bank (ECB) mopped up surplus funds on Wednesday, a well-worn practice aimed at reassuring subprime-shy banks while taking care not to fuel inflation.
After providing almost 350 billion euros (US$502 billion) to commercial banks on Tuesday, the ECB withdrew more than 133 billion euros a day later in what might seem like contradictory moves.
"We are not pouring in liquidity," ECB President Jean-Claude Trichet explained in an appearance at the European Parliament in Brussels. "The loans are paid back too."
The ECB has nonetheless been generous in offering ample supplies of liquidity at rates well below high levels, which themselves reflect tension that has persisted since the US market for subprime loans collapsed a few months ago.
On Tuesday, interbank lending rates eased considerably after the ECB's biggest ever single cash provision, a two-week operation aimed at ensuring banks would have the liquidity they needed to make it though the end of the year.
In some cases, interest rates charged by banks to each other showed the biggest drop in almost six years.
The ECB's goal is to re-establish confidence among banks, which no longer want to lend to each other because they are unsure how exposed borrowers might be to subprime-related losses.
Bank jitters are compounded by the coming end of the year, when many institutions close out their books.
They want to constitute ample supplies of cash "to show shareholders and investors they are not at risk and can cope with the consequences of the subprime crisis," said Gilles Moec, a senior economist at Bank of America.
Meanwhile, Trichet made it clear that "we do not pretend to cure the situation" through repeated cash provisions of tens of billions of euros.
The bank was simply acting on a short-term basis to keep lending rates from soaring out of sight.
When, on the other hand, they fall too much, the ECB also acts to prevent excessively cheap funds from fueling inflation. A banking source said on Wednesday that overnight interbank rates had fallen to 3.75 percent late on Tuesday, below the ECB benchmark lending rate of 4.0 percent.
That led to the operation on Wednesday that offered to borrow money from commercial banks at 4.0 percent, a move that pulled rates back up.
The ECB calls such actions "fine-tuning" operations and they normally involve money lent or borrowed for short periods of time.
But while the various actions can stabilize markets temporarily, they have not produced real long-term effects until now. The ECB hopes that when banks publish annual results losses stemming from the crisis will become clear and confidence will return to markets.
FREEDOM OF NAVIGATION: The UK would continue to reinforce ties with Taiwan ‘in a wide range of areas’ as a part of a ‘strong unofficial relationship,’ a paper said The UK plans to conduct more freedom of navigation operations in the Taiwan Strait and the South China Sea, British Secretary of State for Foreign, Commonwealth and Development Affairs David Lammy told the British House of Commons on Tuesday. British Member of Parliament Desmond Swayne said that the Royal Navy’s HMS Spey had passed through the Taiwan Strait “in pursuit of vital international freedom of navigation in the South China Sea.” Swayne asked Lammy whether he agreed that it was “proper and lawful” to do so, and if the UK would continue to carry out similar operations. Lammy replied “yes” to both questions. The
‘OF COURSE A COUNTRY’: The president outlined that Taiwan has all the necessary features of a nation, including citizens, land, government and sovereignty President William Lai (賴清德) discussed the meaning of “nation” during a speech in New Taipei City last night, emphasizing that Taiwan is a country as he condemned China’s misinterpretation of UN Resolution 2758. The speech was the first in a series of 10 that Lai is scheduled to give across Taiwan. It is the responsibility of Taiwanese citizens to stand united to defend their national sovereignty, democracy, liberty, way of life and the future of the next generation, Lai said. This is the most important legacy the people of this era could pass on to future generations, he said. Lai went on to discuss
SECOND SPEECH: All political parties should work together to defend democracy, protect Taiwan and resist the CCP, despite their differences, the president said President William Lai (賴清德) yesterday discussed how pro-Taiwan and pro-Republic of China (ROC) groups can agree to maintain solidarity on the issue of protecting Taiwan and resisting the Chinese Communist Party (CCP). The talk, delivered last night at Taoyuan’s Hakka Youth Association, was the second in a series of 10 that Lai is scheduled to give across Taiwan. Citing Taiwanese democracy pioneer Chiang Wei-shui’s (蔣渭水) slogan that solidarity brings strength, Lai said it was a call for political parties to find consensus amid disagreements on behalf of bettering the nation. All political parties should work together to defend democracy, protect Taiwan and resist
By refusing to agree spending increases to appease US President Donald Trump, Spanish Prime Minister Pedro Sanchez threatened to derail a summit that NATO Secretary-General Mark Rutte needs to run smoothly for the sake of the military alliance’s future survival. Ahead of yesterday’s gathering in The Hague, Netherlands, things were going off the rails. European officials have expressed irritation at the spoiler role that Sanchez is playing when their No. 1 task is to line up behind a pledge to raise defense spending to 5 percent of GDP. Rutte needed to keep Spain in line while preventing others such as Slovakia
RSS