Meanwhile, the London interbank overnight rate, or LIBOR, dipped 1 basis point to 0.38%. Also, the difference between what banks and the U.S. Treasury pay to borrow dollars for three months, the TED spread, fell 12 basis points to 211 basis points, which is down from 364 basis points on October 10.
Economist Peter Dawson said Tuesday the only thing better than falling gasoline prices is a drop in overnight interest rates. "Again, you have to like this progress. Central bank infusions of dollars continue to loosen credit markets, which is one part in solving this financial crisis," Dawson said. "Also, look for continued downward movement in bank-to-bank rates, if the [U.S. presidential] election goes as expected and Obama wins, on the belief it's a vote of confidence for policies put in place to end the financial crisis."
According to Gallup.com, U.S. Sen. Barack Obama, D-Illinois, led U.S. Sen. John McCain, R-Arizona, 55%-44% in the organization's final tracking poll.
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.
The LIBOR is particularly important because it determines rates on $360 trillion of financial products worldwide, from home loans to derivatives.
U.S. and European governments have now pledged as much as $3.6 trillion to unfreeze credit markets, meet demand for dollars, and recapitalize banks.
Economic Analysis: As economist Dawson noted, given the public policy implications, on Tuesday banks will have one eye on interest rates, and one eye on U.S. election results.
Heinz looking good after the second quarter?
Why isn't Bank of America updating its shareholders on CEO situation?
Will Rich Ross really have a positive impact on Disney's movie operations?
