Under the radar: Libor's dip below 0.50% indicates further credit thaw

Posted Jul 28th 2009 9:00AM by Joseph Lazzaro
Filed under: International Markets, Financial Crisis

Some trends are obvious enough and visible to all investors. Others are more subtle, but are just as potent, and these often slip "under the radar."

Case in point: The 3-month Libor, or London interbank offered rate, dipped below 0.50% to 0.496% for the first time since the financial crisis began last fall, providing additional evidence that central banks' efforts to loosen credit markets are working, Bloomberg News reported Monday.

The rate, which is a benchmark for about $360 trillion in financial products world wide, peaked at 4.82% in October 2008.

Further, the Libor-OIS spread, an indicator of banks willingness to lend, totaled 31 basis points on Monday; back in October 2008 it hit a high of 364 basis points.

Economic Analysis: Led by the U.S. Federal Reserve, the major central banks have used traditional monetary tools and extraordinary measures (such as quantitative easing), to restore liquidity to markets. And so far, so good. The major central banks must stay the course, to maintain liquidity, and now work on the "front end" of the equation: devise policies to encourage banks to extend more credit, particularly to small and medium businesses. Many need more credit to facilitate commerce.

Tags: Libor